Macquarie Investment Management to Pay $79.8 Million for Overvalued CMOs and Unlawful Cross Trades

Posted on October 11th, 2024 at 12:03 PM
Macquarie Investment Management to Pay $79.8 Million for Overvalued CMOs and Unlawful Cross Trades

From the desk of Jim Eccleston at Eccleston Law

The U.S. Securities and Exchange Commission (SEC) has charged Macquarie Investment Management Business Trust (MIMBT) with overvaluing collateralized mortgage obligations (CMOs) and executing unlawful cross-trades that favored certain clients. MIMBT will pay a total of $79.8 million to settle the charges, which include a $70 million penalty, plus $9.8 million in disgorgement and prejudgment interest.

The DI Wire reports that an investigation revealed that between January 2017 and April 2021, MIMBT overvalued approximately 4,900 illiquid CMOs held across 20 advisory accounts, including 11 retail mutual funds. MIMBT utilized a third-party pricing service intended for larger, institutional-sized lots, even though it held smaller "odd lot" CMO positions. This mispricing resulted in inflated valuations, overstating the performance of client accounts.

To mitigate losses for redeeming investors, MIMBT arranged cross-trades, including 465 internal trades and 175 dealer-interposed trades. According to DI Wire, those trades allegedly favored certain clients by selling overvalued CMOs at prices above the current market, resulting in retail mutual funds absorbing losses that should have been borne by other accounts.

Without admitting or denying the SEC’s findings, MIMBT agreed to a cease-and-desist order, a censure, and a $79.8 million payment. The firm will also hire a compliance consultant to review its policies on CMO valuation and cross-trading.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law

Return to Archive

TESTIMONIALS

Previous
Next

I am grateful to have found an outstanding law firm that specializes in securities matters. My lawyers were extremely knowledgeable, diligent, and are skilled litigators. No stone was left upturned. As a result of their experience and tenacity, the arbitration proceeding was dismissed in my favor.

Michael E.

LATEST NEWS AND ARTICLES

May 2, 2025
Former Edward Jones Broker Indicted for Defrauding Elderly Widow

Federal prosecutors have indicted a former Edward Jones financial advisor on charges of wire fraud, mail fraud, money laundering, and tax violations after he allegedly stole more than $920,000 from a 77-year-old widowed client.

May 1, 2025
FINRA Fines Sanctuary Wealth $150,000 for AML Program Deficiencies

FINRA has fined and censured independent broker-dealer Sanctuary Wealth Management $150,000 for failing to establish an adequate anti-money laundering (AML) program to detect and report suspicious transactions.

April 30, 2025
Cambridge Investment Research Advisors to Pay $15 Million Fine Over Undisclosed Conflicts in Investment Recommendations

Cambridge Investment Research Advisors (CIRA) has agreed to pay $15 million to settle allegations brought by the Securities and Exchange Commission (SEC), which accused the firm of failing to disclose multiple conflicts of interest in its investment recommendations.