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Brokerage firm penalized for excessive municipal bond markup

When a person buys a municipal bond, they're lending money to a government entity that will use it to build libraries, schools, roads, hospitals and so on. The list of bonds issued by Kentucky entities is long and varied.

Excessive mark-ups still plague the municipal bond market, however; a market dominated by small investors (individuals and people invested in mutual funds). The Wall Street Journal notes that small investors comprise about 70 percent of the $3.7 trillion muni bond market, which is why a recent Securities and Exchange Commission action is being hailed as a victory for average Americans.

The SEC penalized a brokerage firm selling new municipal securities for overcharging customers. The Missouri-based Edward Jones is paying $20 million to settle allegations that it sold bonds above the prices negotiated by issuers.

While the firm doesn't admit or deny the charges, it has agreed to fully compensate 13,000 past and current clients who have been overcharged. The Journal reports that the company also now discloses markups in dollar totals and percentages on fixed-income trade confirmations for retail customers.

An SEC spokesperson said the commission is determined to maintain the integrity of the municipal bond market that enables communities and other entities to build vital pieces of the national infrastructure.

Lexington-area residents who have been charged undisclosed, excessive markups on fixed-income portfolios by a broker or dealer will undoubtedly have many questions about their situations and legal options. An attorney experienced in determining what is an excessive markup (or markdown) can answer those questions and assist in negotiations and litigation.

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