Finding that BMO Capital Markets failed to supervise mortgage-backed bond sales, the SEC announced a $40+ million agreement to settle the charges, writing that BMO failed to establish and implement supervisory procedures for $3 billion-worth of mortgage-backed 'sliver bond' sales.
The SEC found that BMO sold bonds with inaccurate or misleading offering sheets and bond metrics, using a small sliver of high-interest mortgages instead of a larger sample, and that these inaccuracies were exacerbated by BMO's failure to supervise its representatives as well as systematic failures to implement an adequate supervisory policy.
Investigators found that the sliver bonds, such as one called "Bond X", were structured in a misleading way on purpose to generate "favorable collateral information" which BMO reps would then use in their marketing, for instance by sending materially misleading information to potential investors.
In other words, the SEC claimed that BMO personnel structured the esoteric bonds in such a way as to alter marketing data to portray the bonds in a more favorable light than reality, and due to BMO Capital's supervisory failures, this manipulative misconduct persisted without regard to accuracy.
BMO's penalty of $40 million includes a $19 million civil fine, $19.4 million in disgorgement, and $2.2 million-worth of prejudgment interest.
If you invested with a BMO Capital Markets broker or investment adviser in mortgage-backed bonds, such as the "Bond X" sliver bond, due to materially misleading information, an unsuitable recommendation, or otherwise illicit circumstances, resulting in losses or other damages, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.