The U.S. Securities and Exchange Commission (SEC) has charged over 20 companies and individuals for carrying out securities transactions without the appropriate broker-dealer registration. The companies regularly transacted bonds on behalf of Chicago-based trading firm, Global Fixed Income LLC.
According to federal securities laws, companies need to be registered as broker-dealers and maintain books and records of their transactions. In addition, the SEC is doing periodic inspections of the companies in order to protect their clients.
After a thorough investigation process, a SEC investigation found that Global Fixed Income LLC, which has mostly been active in buying investment grade corporate bonds, has signed agreements with the third parties mentioned above to act on the firm’s behalf.
The investigation found out that between July 2009 and June 2012 the companies bought billions of dollars worth of newly issued bonds causing a substantial increase in the allocation of Global Fixed Income LLC.
The company was easily able to sell or “flip” the bonds within a few days to realize a small profit, splitting the proceeds profits with the unregistered broker-dealers. Since during the period the bond market has been on a persistent uptrend due to the treasury and mortgage purchases by the U.S. Federal Reserve under its quantitative easing program, the trades were easy to execute due to oversubscribed auctions.
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The deals were arranged by Global Fixed Income and its owner Charles Perlitz Kempf, who agreed to settle the SEC’s charges along with the 21 third-party participants. While not admitting to wrongdoings, the firms will collectively pay nearly $5 million in disgorgement of profits plus approximately $1 million in penalties.
The Director of the SEC’s Los Angeles Regional Office, Michele Layne, shared in the regulator’s announcement, “Global Fixed Income essentially hired firms to act as brokers on its behalf and purchase billions of dollars of newly issued bonds to increase profitability in the bond market, yet none of the firms or their employees were registered to legally act as brokers.”
According to the announcement by the SEC, the third-party participants who committed violations of the securities law constitute nine companies and 12 individuals.
Global Fixed Income, and its owner Kempf, and the third-party participants consented to the orders without admitting or denying the findings. In addition to the disgorgement amounts set forth in the orders, Global Fixed Income agreed to pay a $500,000 penalty, each corporate participant agreed to pay a $50,000 penalty, and each individual participant agreed to pay a $5,000 penalty.
The SEC’s order suspends Kempf from associating with a registered entity or participating in a penny stock offering for 12 months.