According to FINRA, NewEdge Securities, LLC (formerly Mid Atlantic Capital Corporation) has been censured, fined $275,000, and ordered to pay disgorgement of $750,746 plus interest for submitting orders to underwriters for new issue municipal bonds without disclosing they were for the firm's dealer account.

Two firm branches founded and owned by registered principals submitted orders to underwriters during retail order periods when the orders were actually for the firm's dealer account, not retail customers. A registered representative sent letters falsely stating that the branches constituted a family office/Registered Investment Advisor when they did not.

After establishing relationships with underwriters based on these false premises, the firm received improper allocations of municipal bonds. The branches then quickly resold the bonds on the secondary market, earning $750,746 in ill-gotten gains.

The firm also failed to report dealer municipal bond transactions to RTRS and failed to maintain a supervisory system to ensure compliance with MSRB rules. The firm had no supervisory processes to verify that orders for dealer accounts were accurately disclosed or that retail order period orders were for bona fide retail customers.

Furthermore, supervisors received communications reflecting that the representative was mischaracterizing the branches but took no reasonable steps to investigate. The firm also failed to preserve and review Bloomberg instant messages for eight years.

This case reveals how improper access to new issue municipal bond allocations can harm retail investors. Retail order periods exist to give individual investors priority access to new issues. When dealers fraudulently obtain these allocations and flip them for profit, they undermine the integrity of the municipal bond market and disadvantage legitimate retail purchasers.