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The corruption continues on.



September 24, 2009 – Comments (0) | RELATED TICKERS: SLV , AUY , BX

Wells Fargo launches $2 bln note sale - IFR

Thu Sep 24, 2009 2:01pm EDT

FINRA checks bank pricing of muni retail orders

NEW YORK, Sept 24 (Reuters) - The U.S. securities industry regulator has launched an informal probe of the performance of U.S. municipal bond underwriters in handling retail orders and ensuring that issuers get fair prices.

The inquiry was partly prompted by questions about whether a multibillion debt sale by California earlier this year was oversubscribed during a retail order period, Malcolm Northam, fixed-income director at the Financial Industry Regulatory Authority, or FINRA, told reporters at a conference.

FINRA, the biggest self-regulatory organization for the securities industry, wants to know how underwriters define retail investors, what commitments they make to issuers when they are selected to run retail order periods and whether they fulfill them, Northam said.

Many leveraged plays such as tender option bond programs disappeared from the municipal market after being hit by problems during the credit crunch. Prior to that, they had played a major role for several years.

That opened the door for individual buyers to return to their traditional role as one of the muni market's biggest players. States, counties, cities and municipalities have stepped up their efforts to attract the retail market, for example, by running radio advertisements.

Northam said FINRA would look into whether an underwriter, after doing its best to place new issues with individuals, temporarily placed them with another firm in order to capture any strong price increases after the offering.

For example, a new municipal bond that chalked up big gains in the after-market may signal that the issuer did not get a fair price.

The inquiry into retail order periods joins three other examinations FINRA has undertaken regarding municipal gas bonds, including questions about what investors were told about the risks of a Georgia issue Lehman Brothers (LEHMQ.PK) brought to market just months before it was driven into bankruptcy.

FINRA is examining how municipal issuers that entered into derivative contracts, such as interest rate swaps, were directed to affiliates of the underwriter or other companies that might have paid compensation for the referral.

Another line of questions delves into how brokerage firms ensure that their customers get all the disclosures about issuers that are required, including whether they turn the responsibility over to brokers or have records that show the materials were received. (Reporting by Joan Gralla; Editing by Dan Grebler)

 Want to bet that Goldman Saks come out smelling like a Rose again?


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