SEC Charges Underwriter and Its Former CEO With Misconduct In Muni Bond Tender Offer
Washington D.C., Aug. 26, 2021 —
The Securities and Exchange Commission today instituted settled charges against Crews & Associates Inc., an Arkansas-based broker-dealer, and its former CEO, Rush F. Harding III, for unfair dealing in connection with a municipal bond tender offer.
The SEC’s orders find that Crews, at Harding’s direction, recommended to a county in West Virginia that the county attempt to reduce the amount of its outstanding debt service expense through a tender offer for bonds it had issued years earlier. According to the orders, in the months following the discussions of the tender offer, Crews, with Harding’s approval, purchased millions of dollars of the county’s outstanding bonds and sold them to an entity affiliated with Crews and to Crews’ customers. Almost all of the bonds Crews acquired were eventually sold to its affiliate and tendered back to the county at a price that Crews had recommended, resulting in a net profit to the affiliate. In recommending the purchase price, Crews did not disclose to the county that Crews’ affiliate had acquired bonds to be tendered, or the resulting conflict of interest created by its affiliate’s financial interest in the tender offer.
“In municipal bond offerings, underwriters must fully disclose to issuers their financial interests in the deal,” said LeeAnn G. Gaunt, Chief of the Enforcement Division’s Public Finance Abuse Unit, “Failure to do so is a violation of their obligation to deal fairly with issuers.”
Crews and Harding have agreed, without admitting or denying the SEC’s findings, to orders finding that they willfully violated fair dealing and supervision provisions of certain Municipal Securities Rulemaking Board (MSRB) Rules, finding that Crews willfully violated Section 15B(c)(1) of the Securities Exchange Act of 1934, which prohibits broker-dealers from effecting transactions in municipal securities in contravention of MSRB rules, and finding that Harding caused that violation. The orders also censure Crews and Harding and order Crews and Harding to cease and desist from violating Exchange Act Section 15B(c)(1). Crews is ordered to pay disgorgement and prejudgment interest of $44,072 and a civil penalty of $200,000, and Harding is ordered to pay disgorgement and prejudgment interest of $46,481 and a civil penalty of $100,000. Harding has also agreed to certain undertakings and limitations on activities.
The SEC’s investigation was conducted by Sally Hewitt and Eric Celauro of the Public Finance Abuse Unit and the Chicago Regional Office with assistance from Jonathan Wilcox. The investigation was supervised by Brian D. Fagel. The SEC examination that led to the investigation of Crews was conducted by John Brodersen, Michael Wells, David Kinsella, Karla Serna, Stephanie Werner, Catherine Cotey, and Jay Dietrich.