In re RBC Capital Markets

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UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 93042 / September 17, 2021 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-20568 
 
 
 
In the Matter of 
 
RBC Capital Markets, LLC, 
 
Respondent. 
 
 
 
 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-AND-
DESIST PROCEEDINGS, PURSUANT TO 
SECTIONS 15(b), 15B(c) AND 21C OF 
THE SECURITIES EXCHANGE ACT OF 
1934, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS 
AND A CEASE-AND-DESIST ORDER 
 
I. 
 
The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
instituted pursuant to Sections 15(b), 15B(c) and 21C of the Securities Exchange Act of 1934 
(“Exchange Act”) against RBC Capital Markets, LLC (“RBC” or “Respondent”).  
  
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b), 15B(c) and 21C of 
the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 
Cease-and-Desist Order (“Order”), as set forth below.   
 
 

 
 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary 
 
This matter involves improper conduct by RBC in connection with certain negotiated new 
issue municipal bond offerings.  Between January 2014 and December 2017 (“the relevant period”), 
RBC, when acting as sole underwriter or senior syndicate manager in negotiated offerings, 
undertook to allocate bonds according to an internal “standard methodology,” in the absence of 
different instructions from issuers.  The firm’s standard methodology required RBC to fill all orders 
for customers and all dealer orders for RBC, syndicate members and other broker-dealers before 
allocating bonds to unregistered brokers known as “flippers.”  However, RBC did not always follow 
the standard methodology when it did not have priority instructions from issuers and, in forty-one 
instances when orders exceeded the bonds available, it failed to prioritize institutional customer 
and/or dealer orders ahead of flipper orders.  Further, in three instances where it had issuer 
instructions, RBC violated those instructions by allocating bonds to flippers ahead of orders for 
retail customers even though it knew that the flippers’ orders did not meet the issuer’s retail 
eligibility criteria for the offering.  Moreover, in certain offerings in which it was not a participating 
underwriter,  RBC obtained new issue municipal bonds for the firm’s own inventory by placing 
indications of interest with flippers who then placed customer orders with underwriters, instead of 
RBC submitting dealer orders to the underwriters.  Through this practice, RBC caused the flippers 
to act as unregistered brokers and circumvented issuer order priorities, improperly receiving higher 
priority in those offerings.   
 
As a result of this conduct, RBC violated Municipal Securities Rulemaking Board 
(“MSRB”) Rules G-11(k) and G-17.  In addition, RBC violated MSRB Rule G-27, and failed 
reasonably to supervise, within the meaning of Section 15(b)(4)(E) of the Exchange Act with a 
view to preventing and detecting violations of the MSRB Rules G-11(k) and G-17 by certain 
registered representatives.  RBC also violated Section 15B(c)(1) of the Exchange Act and caused 
violations of Section 15(a)(1) of the Exchange Act.  
 
Respondent 
 
1. RBC Capital Markets, LLC, incorporated in Minnesota and headquartered in New 
York, New York, is registered with the Commission as a broker-dealer, municipal securities dealer, 
investment adviser and municipal advisor.  
 
Other Relevant Entities 
 
2. RMR Asset Management Company (“RMR”) was a California corporation 
with a principal place of business in Chula Vista, California.  RMR primarily bought and sold 
                                                             
1
 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 
 

 
 
new issue bonds.  RMR was not registered with the Commission.  The Commission filed an 
enforcement action against RMR and its associates in August 2018.
2
   
 
3. Core Performance Management, LLC (“CPM”) was a Florida limited liability 
company located in Boca Raton, Florida that was dissolved on July 27, 2016.  During the 
relevant period, CPM primarily bought and sold new issue municipal bonds.  CPM was not 
registered with the Commission.  The Commission filed an enforcement action against CPM and 
its associates in August 2018.
3
   
 
Background on Municipal Underwriting Process 
 
4. Municipalities often raise money by issuing bonds that are sold to the public 
through an underwriting process.  In what is known as a “negotiated” offering, the municipal 
issuer chooses a broker-dealer to act either as sole underwriter or as the senior manager of an 
underwriting syndicate.  An underwriting syndicate is a group of broker-dealers that join together 
to purchase new issue bonds from the issuer to distribute the bonds to the public.    
 
5. Negotiated offerings of new issue municipal bonds are conducted according to 
certain rules, including the “priority of orders,” which establishes the sequence in which bonds 
will be allocated to specific types of orders.  Issuer priority rules typically assign retail customer 
orders the highest priority in the bond allocation process.  Issuers generally prioritize customer 
orders ahead of orders for broker-dealers seeking bonds for their own inventory, and as a result 
such orders are often not filled.  Potential purchasers consider order priorities significant because 
orders for bonds in primary offerings often exceed the amount of bonds available.   
 
RBC’s Practices Concerning Flippers 
 
6. During the relevant period, the Head of RBC’s municipal sales, trading and 
syndication group (“RBC’s Municipal Manager”) appointed a single RBC salesperson to cover 
accounts held by RMR, CPM and their affiliates (collectively, “the flippers”) at RBC.  The 
flippers were assigned to a single institutional salesperson because the Municipal Manager 
understood that the flippers’ primary business was buying and selling new issue bonds based on 
indications of interest that they received from broker-dealers.  
 
 
                                                             
2
 SEC v. RMR Asset Management Company, et al., 18-CV-01895-AJB-JMA (S.D. Cal. filed Aug. 14, 2018) 
(partially settled action against RMR and 13 associated individuals for acting as unregistered brokers and, as to 10 of 
them, for engaging in fraudulent practices in connection with flipping new issue municipal bonds).  In August 2020, 
the U.S. District Court for the Southern District of California granted summary judgment to the SEC, finding that 
three RMR associates acted as unregistered brokers in violation of Section 15(a) of the Exchange Act when they 
engaged in thousands of securities transactions for RMR.  
3
 SEC v. Core Performance Management, LLC, et al., 18-CV-81081-BB (S.D. Fla., filed Aug. 14, 2018) (settled 
action against CPM and five associated individuals for acting as unregistered brokers and for engaging in fraudulent 
practices in connection with flipping new issue municipal bonds). 

 
 
7. RBC’s Municipal Manager directed that all trading in new issue bonds with the 
flippers be done through the salesperson appointed to cover them.  Accordingly, that salesperson 
submitted orders for new issue bonds for the flippers to RBC’s syndicate desk only if directed to 
do so by the Municipal Manager and/or an underwriter on the syndicate desk.  The salesperson 
likewise placed indications of interest for new issue bonds with the flippers for RBC’s inventory 
only if instructed to do so by trading personnel on RBC’s trading desk.  
 
8. During the relevant period, RBC had a written internal policy (the “Policy”) 
relating to new issue municipal bond offerings.  The Policy established procedures that RBC’s 
syndicate desk was to follow when RBC was acting as sole underwriter or senior syndicate 
manager.  In the absence of different priority instructions from issuers, flippers were to receive 
the lowest priority.  Specifically, the Policy required RBC’s syndicate desk to adhere to a 
“standard methodology,” and prioritize orders and allocate bonds as follows:  
 
● 1
st
 priority: Orders for Customers 
● 2
nd
 priority: Orders for [RBC’s] own account, [RBC] related accounts or [RBC] 
affiliated accounts (or syndicate member’s own, related or affiliated accounts, if 
applicable) 
● 3
rd
 priority: Orders for Broker-Dealers other than [RBC] and syndicate members 
● 4
th
 priority: Any other orders 
 
9. The Policy defined “Customer” orders entitled to first priority under the standard 
methodology to “generally include all orders received by or on behalf of an individual or 
institution other than 2
nd
, 3
rd
 and 4
th
 priority.”  Orders that had last, or fourth, priority were 
defined as “[any] other orders, including orders such as those submitted by a customer who, in 
the reasonable belief of [RBC] plans to purchase the securities and immediately resell such 
securities at higher prices (known as a “flipper”) or instances in which [RBC] is unable to 
reasonably authenticate the status or qualification of an order during a retail order period directed 
by an Issuer.”   
 
10. Pursuant to the Policy, in advance of each negotiated offering where RBC’s 
syndicate desk acted as sole underwriter or senior syndicate manager, RBC provided issuers a 
written notice titled “Notice of Priority of Orders from and Allocations to Investors” (the 
“Notices”).  The Notices described the standard methodology, and they stated that RBC would 
“deviate from such priority only when deemed by [RBC] to be in the best interests of the 
syndicate or unless the Issuer otherwise consents.”   
 
11. The Policy further required RBC’s syndicate desk to document any and all 
deviations from established priority provisions, as well as the reasons for the deviations, and to 
keep that documentation and any issuer instructions in the firm’s underwriting files.  
 
RBC Improperly Allocated Bonds to the Flippers 
 
12. During the relevant period, when RBC was acting as sole underwriter or senior 
syndicate manager, RBC’s syndicate desk did not always adhere to the standard methodology set 
forth in the Policy and the Notices in the absence of different priority instructions from issuers.  

 
 
On forty-one occasions when orders exceeded the new issue bonds available, the syndicate desk 
prioritized orders for flippers over orders for “Customers” (as defined by the standard 
methodology) and dealer orders.  Further, the syndicate desk failed to document these deviations 
from the standard methodology or the reasons for them.  The decisions to allocate new issue 
bonds to the flippers in these instances were made by the Head of RBC’s syndicate desk or the 
underwriter on the desk assigned to directly manage the offering, in consultation with the 
Municipal Manager and/or RBC’s municipal sales manager.       
 
13. When RBC’s syndicate desk allocated oversubscribed bonds to the flippers in 
contravention of the standard methodology, the flippers orders’ “crowded out” institutional 
customer and/or dealer orders which should have been filled first according to the standard 
methodology.  For example, in September 2016, RBC’s syndicate desk served as senior manager 
for a negotiated offering of municipal bonds in the total principal amount of $127.6 million.  In 
connection with the offering, RBC’s sales desk submitted eight orders for four different 
maturities on behalf of RMR and two of its affiliates to the firm’s syndicate desk.  Orders for all 
four of the maturities sought by the flippers exceeded the available bonds, with three of the 
maturities oversubscribed between 290% and 622%.  Nonetheless, RBC’s syndicate desk 
allocated a combined $3.3 million in the four maturities to RMR and its affiliates while 
approximately $130.3 million in institutional customer orders and approximately $127.3 million 
in dealer orders went unfilled. 
 
14. RBC’s syndicate desk allocated oversubscribed new issue bonds to the flippers in 
order to maintain relationships with the flippers who often purchased new issue bonds from RBC 
in deals where there were not enough other buyers for the bonds.  As described below, RBC also 
acquired new issue bonds in offerings in which it was not a participating underwriter through the 
flippers.   
 
15. RBC’s syndicate desk also failed to follow issuer priority instructions in 
connection with a November 2015 negotiated offering of municipal bonds in the total principal 
amount of $626.8 million for which RBC acted as senior manager.  The issuer directed that a 
retail order period be held in which first priority would be given to retail customer orders.  
Shortly before the retail order period closed, the salesperson assigned to cover the flippers 
submitted two orders for RMR and an order for a CPM affiliate to the syndicate desk.  The 
salesperson falsely certified the orders met the issuer’s retail eligibility criteria, and affirmed 
their eligibility by providing zip codes that were not associated with the flippers.  Although the 
Municipal Manager and the Head of the syndicate desk, who directly managed the offering, were 
aware that the flippers were not retail customers and that they did not meet the issuer’s retail 
eligibility criteria, they allocated $500,000 in bonds of one maturity to RMR and $1,000,000 and 
$250,000 in bonds of another maturity to RMR and the CPM affiliate, respectively.  As a result, 
retail orders from other buyers for these maturities were not filled.   
 
16. RBC made a profit of approximately $69,034 from the forty-four improper 
allocations of new issue municipal bonds that the syndicate desk made to the flippers. 
  

 
 
RBC Improperly Used the Flippers to Obtain New Issue Bonds for its Inventory 
 
17. In addition, during the relevant period, RBC improperly acquired new issue 
municipal bonds for the firm’s inventory by placing orders with the flippers to circumvent the 
lower priority that issuers typically assigned to non-syndicate dealer orders in offerings that it did 
not underwrite.  When acquiring bonds for inventory, RBC was required to submit dealer orders 
directly to the underwriters offering the bonds.  Instead, when RBC’s municipal trading desk 
wanted new issue bonds for inventory, the traders directed the salesperson assigned to cover the 
flippers to place indications of interest for the bonds with the flippers.  The salesperson placed 
the traders’ indications of interest with the flippers when the salesperson knew or should have 
known that the flippers would attempt to fill these indications by placing customer orders with 
the underwriters, when these orders were actually dealer orders on behalf of RBC.  When the 
flippers obtained the new issue bonds from the underwriters, they immediately sold or “flipped” 
the bonds to RBC, typically at a set markup.  This practice improperly gave RBC orders higher 
priority in the bond allocation process than it would have been entitled to under the issuer 
priority rules that applied to these offerings.      
 
18. During the relevant period, RBC obtained new issue bonds for inventory through 
the flippers on at least eighty-seven occasions.  RBC made a profit of approximately $483,406 
by reselling those bonds.        
 
RBC’s Policies and Procedures 
 
19. RBC failed to adopt a reasonable system to implement the firm’s written 
supervisory procedures (“WSPs”) that was designed to achieve compliance with federal 
securities laws and applicable MSRB rules when the firm acted as sole underwriter or senior 
manager of an underwriting syndicate in new issue bond offerings.  The Policy required the 
syndicate desk to allocate bonds according to the standard methodology, and give priority to all 
Customer orders and dealer orders over orders for the flippers in the absence of different 
instructions from issuers.  However, as described above, the syndicate desk allocated 
oversubscribed bonds to orders for flippers ahead of institutional customer and dealer orders.  
RBC failed reasonably to implement the WSPs it had in place in order to address compliance 
with the Policy or the relevant MSRB rules by the firm’s syndicate desk.  
 
20. In addition, RBC’s WSPs did not address circumvention of the priority provisions 
for new issue bond offerings to comply with federal securities laws and applicable MSRB rules 
when RBC bought new issue bonds for its inventory.  RBC lacked policies and procedures with 
respect to how its registered representatives were to submit orders for RBC’s account when RBC 
was not part of the underwriting syndicate.  Under these circumstances, RBC failed to establish 
WSPs reasonably designed to prevent and detect violations by the firm’s trading and sales desks 
relating to evasion of priority provisions.   
 

 
 
Legal Discussion 
RBC Violated MSRB Rule G-17 
21. MSRB Rule G-17 provides that, in the conduct of its municipal securities 
business, every broker, dealer, municipal securities dealer, and municipal advisor shall deal fairly 
with all persons and shall not engage in any deceptive, dishonest, or unfair practice.  Negligence 
is sufficient to establish a violation of MSRB Rule G-17; no finding of scienter is required.  See 
Wheat, First Securities, Inc., Exch. Act Release No. 48378, 2003 WL 21990950, at *10 (Aug. 
20, 2003). 
 
22. As discussed above, RBC, through its registered representatives, allocated bonds 
to the flippers ahead of institutional customer and dealer orders in contravention of the standard 
methodology and submitted three orders on behalf of the flippers to RBC’s syndicate desk when 
it knew that the orders did not satisfy the issuer’s retail eligibility criteria for the offering.  In 
addition, RBC, through its registered representatives circumvented issuer priority provisions of 
certain new issue bond offerings by placing orders with the flippers for RBC’s inventory when it 
knew or should have known that the flippers would place higher priority customer orders for 
RBC. 
 
23. By this conduct, RBC willfully
4
 violated MSRB Rule G-17.  
 
RBC Violated MSRB Rule G-11(k) 
 
24. MSRB Rule G-11(k) provides that each broker, dealer, or municipal 
securities dealer that submits an order during a retail order period to the senior syndicate 
manager or sole underwriter, as applicable, shall provide in writing the following information 
relating to each order designated as retail submitted during a retail order period: (i) whether 
the order is from a customer that meets the issuer’s eligibility criteria for participation in the 
retail order period; (ii) whether the order is one for which a customer is already conditionally 
committed; (iii) whether the broker, dealer, or municipal securities dealer has received more 
than one order from such retail customer for a security for which the same CUSIP number has 
been assigned; (iv) any identifying information required by the issuer, or the senior syndicate 
manager on the issuer’s behalf, in connection with such retail order (but not including 
customer names or social security numbers); and (v) the par amount of the order.
5
  
 
25. RBC, through its registered representatives, submitted three orders for the 
flippers in one offering for new issue bonds to RBC’s syndicate desk, which was acting as 
senior syndicate manager, during the retail order period of the offering.  The orders were 
                                                             
4
 “Willfully,” for purposes of imposing relief under Sections 15(b) and 15B of the Exchange Act “means no more 
than that the person charged with the duty knows what he is doing.”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 
2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 
5
 Rule G-11(k) further provides that the senior syndicate manager may rely on the information furnished by each 
broker, dealer, or municipal securities dealer that provided the information required by (i) - (v) unless the senior 
syndicate manager knows, or has reason to know, that the information is not true, accurate, or complete. 

 
 
improperly designated as retail orders because they did not meet the issuer’s eligibility 
criteria.  RBC falsely certified that the orders met the issuer’s eligibility criteria and affirmed 
their eligibility by providing zip codes, which were required by the issuer, that were not 
associated with the flippers.   
 
26. By this conduct, RBC willfully violated MSRB Rule G-11(k). 
 
RBC Failed Reasonably to Supervise 
and to Establish an Adequate Supervisory System 
 
27. Section 15(b)(4)(E) of the Exchange Act authorizes the Commission to impose 
sanctions against a broker-dealer for failing reasonably to supervise a person subject to the firm’s 
supervision who committed a securities law violation.  A broker-dealer can be liable for failure 
to supervise either when it lacks procedures reasonably designed to prevent and detect the 
underlying violation, see, e.g., Smith Barney, Harris Upham & Co., Exch. Act Release No. 
21813, 1985 WL 548567, at *3 (Mar. 5, 1985), or when it has failed to adopt a reasonable 
system to implement those procedures.  See, e.g., A.G. Edwards & Sons, Inc., Exch. Act Release 
No. 55692, 2007 WL 1285761, at *4 (May 2, 2007). 
 
28. MSRB Rule G-27(a) obligates brokers, dealers, and municipal securities dealers 
to “supervise the conduct of the municipal securities activities of the firm and its associated 
persons to ensure compliance with [MSRB] rules and the applicable provisions of the [Exchange] 
Act and rules thereunder.”  MSRB Rule G-27(b) obligates brokers, dealers, and municipal 
securities dealers to establish and maintain a system to supervise the municipal securities 
activities of each associated person that is reasonably designed to achieve compliance with 
applicable securities laws, regulations and MSRB rules. 
 
29. As described above, certain RBC registered representatives violated MSRB 
Rules G-11(k) and G-17 by circumventing established priority provisions in connection with the 
sale of new issue bonds to the flippers.  RBC failed to adopt a reasonable system to implement 
its WSPs designed to achieve compliance by its registered representatives with MSRB Rules G-
11(k) and G-17 in connection with these sales transactions. 
 
30. As described above, certain RBC registered representatives also violated MSRB 
Rule G-17 by circumventing established priority provisions in connection with their purchases of 
new issue municipal bonds from the flippers.  RBC lacked policies and procedures reasonably 
designed to prevent and detect these violations by its registered representatives. 
 
31. Under the circumstances, RBC failed reasonably to supervise the municipal 
securities activities of its registered representatives to ensure compliance with the federal 
securities laws and MSRB Rules.  As a result, RBC failed reasonably to supervise within the 
meaning of Section 15(b)(4)(E) of the Exchange Act, and willfully violated MSRB Rule G-27. 
 
RBC Caused Violations of Section 15(a)(1) of the Exchange Act 
 
32. To establish causing liability, the Commission must find: (1) a primary violation; 

 
 
(2) the respondent’s act or omission contributed to the violation; and (3) the respondent knew or 
should have known that its act or omission would contribute to the violation.  See 15 U.S.C. § 
78u-3(a); Robert M. Fuller, 80 SEC Docket 3539, 3545, Exch. Act Release No. 48406 (Aug. 25, 
2003) (Commission Opinion). 
 
33. Under Section 15(a)(1) of the Exchange Act, it is unlawful for a broker or dealer 
“to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any 
security ... unless such broker or dealer is registered” with the Commission pursuant to Section 
15(b) of the Exchange Act.  Under Section 3(a)(4)(A) of the Exchange Act, a “broker” is “any 
person engaged in the business of effecting transactions in securities for the account of others.”  
The Exchange Act’s definition of “broker” “connote[s] a certain regularity of participation in 
securities transactions at key points in the chain of distribution.”  Mass. Fin. Serv., Inc. v. Sec. 
Inv. Prot. Corp., 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d, 545 F.2d 754 (1st Cir. 1976); see 
also SEC v. Martino, 255 F. Supp. 2d 268, 283 (S.D.N.Y. 2003). 
 
34. Negligence is sufficient to establish liability for causing a primary violation that 
does not require scienter, such as Section 15(a)(1) of the Exchange Act; no proof of scienter is 
required.  See VanCook, Exch. Act Release No. 61039A, 2009 WL 4005083, at *14 n.65 (Nov. 
20, 2009) (Commission Opinion) (quoting KPMG Peat Marwick LLP, 54 SEC 1135, 1175 
(2001)). 
 
35. The flippers violated Section 15(a)(1) of the Exchange Act because they acted as 
brokers without being registered with the Commission.  RBC’s purchases of bonds through the 
flippers and payment of transaction-based compensation to them in connection with those 
transactions contributed to their violations.  RBC, through its registered representatives, knew, or 
should have known, that the flippers were not registered with the Commission.  As a result, RBC 
caused their direct violations of Section 15(a)(1) of the Exchange Act. 
 
RBC Violated Section 15B(c)(1) of the Exchange Act 
 
36. Section 15B(c)(1) of the Exchange Act prohibits a broker, dealer or municipal 
securities dealer from effecting interstate transactions in, or inducing or attempting to induce the 
purchase or sale of, any municipal security in contravention of any rule of the MSRB.  
 
37. As a result of the negligent conduct described above and its willful violations of 
MSRB Rules G-11(k), G-17 and G-27, RBC willfully violated Section 15B(c)(1) of the 
Exchange Act. 
 
Disgorgement 
 
38. The disgorgement and prejudgment interest ordered in paragraph IV.C.  is 
consistent with equitable principles, does not exceed Respondent’s net profits from its violations, 
and returning the money to Respondent would be inconsistent with equitable principles. Therefore, 
in these circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable 
alternative.  The disgorgement and prejudgment interest ordered in paragraph IV.C. shall be 

 
 
transferred to the general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the Exchange 
Act.   
 
RBC’s Remedial Efforts 
 
39. In determining to accept the Offer, the Commission considered remedial acts  
promptly taken by RBC, including closing the accounts for the flippers; implementing additional 
surveillance measures to identify flipping activity and monitoring secondary market purchases to 
identify improper communications; and enhancing controls for delivery-versus-payment 
accounts.    
 
IV. 
On the basis of the foregoing, the Commission deems it appropriate, in the public interest, 
to impose the sanctions agreed to in Respondent’s Offer. 
 
Accordingly, pursuant to Sections 15(b), 15B(c), and 21C of the Exchange Act, it is 
hereby ORDERED that: 
 
A. Respondent cease and desist from committing or causing any violations and any 
future violations of Sections 15(a)(1) and 15B(c)(1) of the Exchange Act. 
 
B. Respondent is censured. 
 
C. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of  
$552,440 and prejudgment interest of $160,886.97 the Securities and Exchange Commission for 
transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to SEC Rule of 
Practice 600. 
 
D. Respondent shall, within 10 days of the entry of this Order, pay a civil money 
penalty in the amount of $150,000 to the Securities and Exchange Commission, of which a 
total of $37,500 shall be transferred to the MSRB in accordance with Section 15B(c)(9)(A) of 
the Exchange Act, and of which the remaining $112,500 shall be transferred to the general 
fund of the United States Treasury in accordance with Section 21F(g)(3) of the Exchange Act.  
If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
  
E. Payments must be made in one of the following ways: 
 
(1) Respondent may transmit payments electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request; 
 
(2) Respondent may make direct payment from a bank account via 
Pay.gov through the SEC website at 
http://www.sec.gov/about/offices/ofm.htm; or 
 

 
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to: 
 
Enterprise Services Center Accounts Receivable Branch HQ Bldg.,  
Room 181, AMZ-341 6500 South MacArthur Boulevard, Oklahoma  
City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter 
identifying RBC as a Respondent in these proceedings and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Assistant 
Regional Director Kevin B. Currid, Division of Enforcement, Securities and Exchange 
Commission, 33 Arch Street, 24
th 
Floor, Boston, MA 02110. 
 
F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
Action.  Respondent shall not argue that it is entitled to, nor shall Respondent benefit by, offset or 
reduction of any award of compensatory damages by the amount of any part of Respondent’s 
payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 
Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a 
final order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the 
amount of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall 
not be deemed an additional civil penalty and shall not be deemed to change the amount of the 
civil penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor 
Action” means a private damages action brought against Respondent by or on behalf of one or 
more investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 
By the Commission. 
 
 
      Vanessa A. Countryman 
      Secretary 
 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 93042 / September 17, 2021 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-20568 

 

 

 

In the Matter of 

 

RBC Capital Markets, LLC, 

 

Respondent. 

 

 

 

 

ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-AND-

DESIST PROCEEDINGS, PURSUANT TO 

SECTIONS 15(b), 15B(c) AND 21C OF 

THE SECURITIES EXCHANGE ACT OF 

1934, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS 

AND A CEASE-AND-DESIST ORDER 

 

I. 

 

The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 15(b), 15B(c) and 21C of the Securities Exchange Act of 1934 

(“Exchange Act”) against RBC Capital Markets, LLC (“RBC” or “Respondent”).  

  

II. 
 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b), 15B(c) and 21C of 

the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist Order (“Order”), as set forth below.   

 

 



 

 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

 

Summary 
 

This matter involves improper conduct by RBC in connection with certain negotiated new 

issue municipal bond offerings.  Between January 2014 and December 2017 (“the relevant period”), 

RBC, when acting as sole underwriter or senior syndicate manager in negotiated offerings, 

undertook to allocate bonds according to an internal “standard methodology,” in the absence of 

different instructions from issuers.  The firm’s standard methodology required RBC to fill all orders 

for customers and all dealer orders for RBC, syndicate members and other broker-dealers before 

allocating bonds to unregistered brokers known as “flippers.”  However, RBC did not always follow 

the standard methodology when it did not have priority instructions from issuers and, in forty-one 

instances when orders exceeded the bonds available, it failed to prioritize institutional customer 

and/or dealer orders ahead of flipper orders.  Further, in three instances where it had issuer 

instructions, RBC violated those instructions by allocating bonds to flippers ahead of orders for 

retail customers even though it knew that the flippers’ orders did not meet the issuer’s retail 

eligibility criteria for the offering.  Moreover, in certain offerings in which it was not a participating 

underwriter,  RBC obtained new issue municipal bonds for the firm’s own inventory by placing 

indications of interest with flippers who then placed customer orders with underwriters, instead of 

RBC submitting dealer orders to the underwriters.  Through this practice, RBC caused the flippers 

to act as unregistered brokers and circumvented issuer order priorities, improperly receiving higher 

priority in those offerings.   

 

As a result of this conduct, RBC violated Municipal Securities Rulemaking Board 

(“MSRB”) Rules G-11(k) and G-17.  In addition, RBC violated MSRB Rule G-27, and failed 

reasonably to supervise, within the meaning of Section 15(b)(4)(E) of the Exchange Act with a 

view to preventing and detecting violations of the MSRB Rules G-11(k) and G-17 by certain 

registered representatives.  RBC also violated Section 15B(c)(1) of the Exchange Act and caused 

violations of Section 15(a)(1) of the Exchange Act.  

 

Respondent 

 

1. RBC Capital Markets, LLC, incorporated in Minnesota and headquartered in New 

York, New York, is registered with the Commission as a broker-dealer, municipal securities dealer, 

investment adviser and municipal advisor.  

 

Other Relevant Entities 

 

2. RMR Asset Management Company (“RMR”) was a California corporation 

with a principal place of business in Chula Vista, California.  RMR primarily bought and sold 

                                                             
1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 

person or entity in this or any other proceeding. 

 



 

 

new issue bonds.  RMR was not registered with the Commission.  The Commission filed an 

enforcement action against RMR and its associates in August 2018.2   

 

3. Core Performance Management, LLC (“CPM”) was a Florida limited liability 

company located in Boca Raton, Florida that was dissolved on July 27, 2016.  During the 

relevant period, CPM primarily bought and sold new issue municipal bonds.  CPM was not 

registered with the Commission.  The Commission filed an enforcement action against CPM and 

its associates in August 2018.3   

 

Background on Municipal Underwriting Process 

 

4. Municipalities often raise money by issuing bonds that are sold to the public 

through an underwriting process.  In what is known as a “negotiated” offering, the municipal 

issuer chooses a broker-dealer to act either as sole underwriter or as the senior manager of an 

underwriting syndicate.  An underwriting syndicate is a group of broker-dealers that join together 

to purchase new issue bonds from the issuer to distribute the bonds to the public.    

 

5. Negotiated offerings of new issue municipal bonds are conducted according to 

certain rules, including the “priority of orders,” which establishes the sequence in which bonds 

will be allocated to specific types of orders.  Issuer priority rules typically assign retail customer 

orders the highest priority in the bond allocation process.  Issuers generally prioritize customer 

orders ahead of orders for broker-dealers seeking bonds for their own inventory, and as a result 

such orders are often not filled.  Potential purchasers consider order priorities significant because 

orders for bonds in primary offerings often exceed the amount of bonds available.   

 

RBC’s Practices Concerning Flippers 

 

6. During the relevant period, the Head of RBC’s municipal sales, trading and 

syndication group (“RBC’s Municipal Manager”) appointed a single RBC salesperson to cover 

accounts held by RMR, CPM and their affiliates (collectively, “the flippers”) at RBC.  The 

flippers were assigned to a single institutional salesperson because the Municipal Manager 

understood that the flippers’ primary business was buying and selling new issue bonds based on 

indications of interest that they received from broker-dealers.  

 

 

                                                             
2 SEC v. RMR Asset Management Company, et al., 18-CV-01895-AJB-JMA (S.D. Cal. filed Aug. 14, 2018) 

(partially settled action against RMR and 13 associated individuals for acting as unregistered brokers and, as to 10 of 

them, for engaging in fraudulent practices in connection with flipping new issue municipal bonds).  In August 2020, 

the U.S. District Court for the Southern District of California granted summary judgment to the SEC, finding that 

three RMR associates acted as unregistered brokers in violation of Section 15(a) of the Exchange Act when they 

engaged in thousands of securities transactions for RMR.  

3 SEC v. Core Performance Management, LLC, et al., 18-CV-81081-BB (S.D. Fla., filed Aug. 14, 2018) (settled 

action against CPM and five associated individuals for acting as unregistered brokers and for engaging in fraudulent 

practices in connection with flipping new issue municipal bonds). 



 

 

7. RBC’s Municipal Manager directed that all trading in new issue bonds with the 

flippers be done through the salesperson appointed to cover them.  Accordingly, that salesperson 

submitted orders for new issue bonds for the flippers to RBC’s syndicate desk only if directed to 

do so by the Municipal Manager and/or an underwriter on the syndicate desk.  The salesperson 

likewise placed indications of interest for new issue bonds with the flippers for RBC’s inventory 

only if instructed to do so by trading personnel on RBC’s trading desk.  

 

8. During the relevant period, RBC had a written internal policy (the “Policy”) 

relating to new issue municipal bond offerings.  The Policy established procedures that RBC’s 

syndicate desk was to follow when RBC was acting as sole underwriter or senior syndicate 

manager.  In the absence of different priority instructions from issuers, flippers were to receive 

the lowest priority.  Specifically, the Policy required RBC’s syndicate desk to adhere to a 

“standard methodology,” and prioritize orders and allocate bonds as follows:  

 

● 1st priority: Orders for Customers 

● 2nd priority: Orders for [RBC’s] own account, [RBC] related accounts or [RBC] 

affiliated accounts (or syndicate member’s own, related or affiliated accounts, if 

applicable) 

● 3rd priority: Orders for Broker-Dealers other than [RBC] and syndicate members 

● 4th priority: Any other orders 

 

9. The Policy defined “Customer” orders entitled to first priority under the standard 

methodology to “generally include all orders received by or on behalf of an individual or 

institution other than 2nd, 3rd and 4th priority.”  Orders that had last, or fourth, priority were 

defined as “[any] other orders, including orders such as those submitted by a customer who, in 

the reasonable belief of [RBC] plans to purchase the securities and immediately resell such 

securities at higher prices (known as a “flipper”) or instances in which [RBC] is unable to 

reasonably authenticate the status or qualification of an order during a retail order period directed 

by an Issuer.”   

 

10. Pursuant to the Policy, in advance of each negotiated offering where RBC’s 

syndicate desk acted as sole underwriter or senior syndicate manager, RBC provided issuers a 

written notice titled “Notice of Priority of Orders from and Allocations to Investors” (the 

“Notices”).  The Notices described the standard methodology, and they stated that RBC would 

“deviate from such priority only when deemed by [RBC] to be in the best interests of the 

syndicate or unless the Issuer otherwise consents.”   

 

11. The Policy further required RBC’s syndicate desk to document any and all 

deviations from established priority provisions, as well as the reasons for the deviations, and to 

keep that documentation and any issuer instructions in the firm’s underwriting files.  

 

RBC Improperly Allocated Bonds to the Flippers 

 

12. During the relevant period, when RBC was acting as sole underwriter or senior 

syndicate manager, RBC’s syndicate desk did not always adhere to the standard methodology set 

forth in the Policy and the Notices in the absence of different priority instructions from issuers.  



 

 

On forty-one occasions when orders exceeded the new issue bonds available, the syndicate desk 

prioritized orders for flippers over orders for “Customers” (as defined by the standard 

methodology) and dealer orders.  Further, the syndicate desk failed to document these deviations 

from the standard methodology or the reasons for them.  The decisions to allocate new issue 

bonds to the flippers in these instances were made by the Head of RBC’s syndicate desk or the 

underwriter on the desk assigned to directly manage the offering, in consultation with the 

Municipal Manager and/or RBC’s municipal sales manager.       

 

13. When RBC’s syndicate desk allocated oversubscribed bonds to the flippers in 

contravention of the standard methodology, the flippers orders’ “crowded out” institutional 

customer and/or dealer orders which should have been filled first according to the standard 

methodology.  For example, in September 2016, RBC’s syndicate desk served as senior manager 

for a negotiated offering of municipal bonds in the total principal amount of $127.6 million.  In 

connection with the offering, RBC’s sales desk submitted eight orders for four different 

maturities on behalf of RMR and two of its affiliates to the firm’s syndicate desk.  Orders for all 

four of the maturities sought by the flippers exceeded the available bonds, with three of the 

maturities oversubscribed between 290% and 622%.  Nonetheless, RBC’s syndicate desk 

allocated a combined $3.3 million in the four maturities to RMR and its affiliates while 

approximately $130.3 million in institutional customer orders and approximately $127.3 million 

in dealer orders went unfilled. 

 

14. RBC’s syndicate desk allocated oversubscribed new issue bonds to the flippers in 

order to maintain relationships with the flippers who often purchased new issue bonds from RBC 

in deals where there were not enough other buyers for the bonds.  As described below, RBC also 

acquired new issue bonds in offerings in which it was not a participating underwriter through the 

flippers.   

 

15. RBC’s syndicate desk also failed to follow issuer priority instructions in 

connection with a November 2015 negotiated offering of municipal bonds in the total principal 

amount of $626.8 million for which RBC acted as senior manager.  The issuer directed that a 

retail order period be held in which first priority would be given to retail customer orders.  

Shortly before the retail order period closed, the salesperson assigned to cover the flippers 

submitted two orders for RMR and an order for a CPM affiliate to the syndicate desk.  The 

salesperson falsely certified the orders met the issuer’s retail eligibility criteria, and affirmed 

their eligibility by providing zip codes that were not associated with the flippers.  Although the 

Municipal Manager and the Head of the syndicate desk, who directly managed the offering, were 

aware that the flippers were not retail customers and that they did not meet the issuer’s retail 

eligibility criteria, they allocated $500,000 in bonds of one maturity to RMR and $1,000,000 and 

$250,000 in bonds of another maturity to RMR and the CPM affiliate, respectively.  As a result, 

retail orders from other buyers for these maturities were not filled.   

 

16. RBC made a profit of approximately $69,034 from the forty-four improper 

allocations of new issue municipal bonds that the syndicate desk made to the flippers. 

  



 

 

RBC Improperly Used the Flippers to Obtain New Issue Bonds for its Inventory 

 

17. In addition, during the relevant period, RBC improperly acquired new issue 

municipal bonds for the firm’s inventory by placing orders with the flippers to circumvent the 

lower priority that issuers typically assigned to non-syndicate dealer orders in offerings that it did 

not underwrite.  When acquiring bonds for inventory, RBC was required to submit dealer orders 

directly to the underwriters offering the bonds.  Instead, when RBC’s municipal trading desk 

wanted new issue bonds for inventory, the traders directed the salesperson assigned to cover the 

flippers to place indications of interest for the bonds with the flippers.  The salesperson placed 

the traders’ indications of interest with the flippers when the salesperson knew or should have 

known that the flippers would attempt to fill these indications by placing customer orders with 

the underwriters, when these orders were actually dealer orders on behalf of RBC.  When the 

flippers obtained the new issue bonds from the underwriters, they immediately sold or “flipped” 

the bonds to RBC, typically at a set markup.  This practice improperly gave RBC orders higher 

priority in the bond allocation process than it would have been entitled to under the issuer 

priority rules that applied to these offerings.      

 

18. During the relevant period, RBC obtained new issue bonds for inventory through 

the flippers on at least eighty-seven occasions.  RBC made a profit of approximately $483,406 

by reselling those bonds.        

 

RBC’s Policies and Procedures 

 

19. RBC failed to adopt a reasonable system to implement the firm’s written 

supervisory procedures (“WSPs”) that was designed to achieve compliance with federal 

securities laws and applicable MSRB rules when the firm acted as sole underwriter or senior 

manager of an underwriting syndicate in new issue bond offerings.  The Policy required the 

syndicate desk to allocate bonds according to the standard methodology, and give priority to all 

Customer orders and dealer orders over orders for the flippers in the absence of different 

instructions from issuers.  However, as described above, the syndicate desk allocated 

oversubscribed bonds to orders for flippers ahead of institutional customer and dealer orders.  

RBC failed reasonably to implement the WSPs it had in place in order to address compliance 

with the Policy or the relevant MSRB rules by the firm’s syndicate desk.  

 

20. In addition, RBC’s WSPs did not address circumvention of the priority provisions 

for new issue bond offerings to comply with federal securities laws and applicable MSRB rules 

when RBC bought new issue bonds for its inventory.  RBC lacked policies and procedures with 

respect to how its registered representatives were to submit orders for RBC’s account when RBC 

was not part of the underwriting syndicate.  Under these circumstances, RBC failed to establish 

WSPs reasonably designed to prevent and detect violations by the firm’s trading and sales desks 

relating to evasion of priority provisions.   

 



 

 

Legal Discussion 

RBC Violated MSRB Rule G-17 

21. MSRB Rule G-17 provides that, in the conduct of its municipal securities 

business, every broker, dealer, municipal securities dealer, and municipal advisor shall deal fairly 

with all persons and shall not engage in any deceptive, dishonest, or unfair practice.  Negligence 

is sufficient to establish a violation of MSRB Rule G-17; no finding of scienter is required.  See 

Wheat, First Securities, Inc., Exch. Act Release No. 48378, 2003 WL 21990950, at *10 (Aug. 

20, 2003). 

 

22. As discussed above, RBC, through its registered representatives, allocated bonds 

to the flippers ahead of institutional customer and dealer orders in contravention of the standard 

methodology and submitted three orders on behalf of the flippers to RBC’s syndicate desk when 

it knew that the orders did not satisfy the issuer’s retail eligibility criteria for the offering.  In 

addition, RBC, through its registered representatives circumvented issuer priority provisions of 

certain new issue bond offerings by placing orders with the flippers for RBC’s inventory when it 

knew or should have known that the flippers would place higher priority customer orders for 

RBC. 

 

23. By this conduct, RBC willfully4 violated MSRB Rule G-17.  

 

RBC Violated MSRB Rule G-11(k) 

 

24. MSRB Rule G-11(k) provides that each broker, dealer, or municipal 

securities dealer that submits an order during a retail order period to the senior syndicate 

manager or sole underwriter, as applicable, shall provide in writing the following information 

relating to each order designated as retail submitted during a retail order period: (i) whether 

the order is from a customer that meets the issuer’s eligibility criteria for participation in the 

retail order period; (ii) whether the order is one for which a customer is already conditionally 

committed; (iii) whether the broker, dealer, or municipal securities dealer has received more 

than one order from such retail customer for a security for which the same CUSIP number has 

been assigned; (iv) any identifying information required by the issuer, or the senior syndicate 

manager on the issuer’s behalf, in connection with such retail order (but not including 

customer names or social security numbers); and (v) the par amount of the order.5  

 

25. RBC, through its registered representatives, submitted three orders for the 

flippers in one offering for new issue bonds to RBC’s syndicate desk, which was acting as 

senior syndicate manager, during the retail order period of the offering.  The orders were 

                                                             
4 “Willfully,” for purposes of imposing relief under Sections 15(b) and 15B of the Exchange Act “means no more 

than that the person charged with the duty knows what he is doing.”  Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 

2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 

5 Rule G-11(k) further provides that the senior syndicate manager may rely on the information furnished by each 

broker, dealer, or municipal securities dealer that provided the information required by (i) - (v) unless the senior 

syndicate manager knows, or has reason to know, that the information is not true, accurate, or complete. 



 

 

improperly designated as retail orders because they did not meet the issuer’s eligibility 

criteria.  RBC falsely certified that the orders met the issuer’s eligibility criteria and affirmed 

their eligibility by providing zip codes, which were required by the issuer, that were not 

associated with the flippers.   

 

26. By this conduct, RBC willfully violated MSRB Rule G-11(k). 

 

RBC Failed Reasonably to Supervise 

and to Establish an Adequate Supervisory System 

 

27. Section 15(b)(4)(E) of the Exchange Act authorizes the Commission to impose 

sanctions against a broker-dealer for failing reasonably to supervise a person subject to the firm’s 

supervision who committed a securities law violation.  A broker-dealer can be liable for failure 

to supervise either when it lacks procedures reasonably designed to prevent and detect the 

underlying violation, see, e.g., Smith Barney, Harris Upham & Co., Exch. Act Release No. 

21813, 1985 WL 548567, at *3 (Mar. 5, 1985), or when it has failed to adopt a reasonable 

system to implement those procedures.  See, e.g., A.G. Edwards & Sons, Inc., Exch. Act Release 

No. 55692, 2007 WL 1285761, at *4 (May 2, 2007). 

 

28. MSRB Rule G-27(a) obligates brokers, dealers, and municipal securities dealers 

to “supervise the conduct of the municipal securities activities of the firm and its associated 

persons to ensure compliance with [MSRB] rules and the applicable provisions of the [Exchange] 

Act and rules thereunder.”  MSRB Rule G-27(b) obligates brokers, dealers, and municipal 

securities dealers to establish and maintain a system to supervise the municipal securities 

activities of each associated person that is reasonably designed to achieve compliance with 

applicable securities laws, regulations and MSRB rules. 

 

29. As described above, certain RBC registered representatives violated MSRB 

Rules G-11(k) and G-17 by circumventing established priority provisions in connection with the 

sale of new issue bonds to the flippers.  RBC failed to adopt a reasonable system to implement 

its WSPs designed to achieve compliance by its registered representatives with MSRB Rules G-

11(k) and G-17 in connection with these sales transactions. 

 

30. As described above, certain RBC registered representatives also violated MSRB 

Rule G-17 by circumventing established priority provisions in connection with their purchases of 

new issue municipal bonds from the flippers.  RBC lacked policies and procedures reasonably 

designed to prevent and detect these violations by its registered representatives. 

 

31. Under the circumstances, RBC failed reasonably to supervise the municipal 

securities activities of its registered representatives to ensure compliance with the federal 

securities laws and MSRB Rules.  As a result, RBC failed reasonably to supervise within the 

meaning of Section 15(b)(4)(E) of the Exchange Act, and willfully violated MSRB Rule G-27. 

 

RBC Caused Violations of Section 15(a)(1) of the Exchange Act 

 

32. To establish causing liability, the Commission must find: (1) a primary violation; 



 

 

(2) the respondent’s act or omission contributed to the violation; and (3) the respondent knew or 

should have known that its act or omission would contribute to the violation.  See 15 U.S.C. § 

78u-3(a); Robert M. Fuller, 80 SEC Docket 3539, 3545, Exch. Act Release No. 48406 (Aug. 25, 

2003) (Commission Opinion). 

 

33. Under Section 15(a)(1) of the Exchange Act, it is unlawful for a broker or dealer 

“to effect any transactions in, or to induce or attempt to induce the purchase or sale of, any 

security … unless such broker or dealer is registered” with the Commission pursuant to Section 

15(b) of the Exchange Act.  Under Section 3(a)(4)(A) of the Exchange Act, a “broker” is “any 

person engaged in the business of effecting transactions in securities for the account of others.”  

The Exchange Act’s definition of “broker” “connote[s] a certain regularity of participation in 

securities transactions at key points in the chain of distribution.”  Mass. Fin. Serv., Inc. v. Sec. 

Inv. Prot. Corp., 411 F. Supp. 411, 415 (D. Mass. 1976), aff’d, 545 F.2d 754 (1st Cir. 1976); see 

also SEC v. Martino, 255 F. Supp. 2d 268, 283 (S.D.N.Y. 2003). 

 

34. Negligence is sufficient to establish liability for causing a primary violation that 

does not require scienter, such as Section 15(a)(1) of the Exchange Act; no proof of scienter is 

required.  See VanCook, Exch. Act Release No. 61039A, 2009 WL 4005083, at *14 n.65 (Nov. 

20, 2009) (Commission Opinion) (quoting KPMG Peat Marwick LLP, 54 SEC 1135, 1175 

(2001)). 

 

35. The flippers violated Section 15(a)(1) of the Exchange Act because they acted as 

brokers without being registered with the Commission.  RBC’s purchases of bonds through the 

flippers and payment of transaction-based compensation to them in connection with those 

transactions contributed to their violations.  RBC, through its registered representatives, knew, or 

should have known, that the flippers were not registered with the Commission.  As a result, RBC 

caused their direct violations of Section 15(a)(1) of the Exchange Act. 

 

RBC Violated Section 15B(c)(1) of the Exchange Act 

 

36. Section 15B(c)(1) of the Exchange Act prohibits a broker, dealer or municipal 

securities dealer from effecting interstate transactions in, or inducing or attempting to induce the 

purchase or sale of, any municipal security in contravention of any rule of the MSRB.  

 

37. As a result of the negligent conduct described above and its willful violations of 

MSRB Rules G-11(k), G-17 and G-27, RBC willfully violated Section 15B(c)(1) of the 

Exchange Act. 

 

Disgorgement 

 

38. The disgorgement and prejudgment interest ordered in paragraph IV.C.  is 

consistent with equitable principles, does not exceed Respondent’s net profits from its violations, 

and returning the money to Respondent would be inconsistent with equitable principles. Therefore, 

in these circumstances, distributing disgorged funds to the U.S. Treasury is the most equitable 

alternative.  The disgorgement and prejudgment interest ordered in paragraph IV.C. shall be 



 

 

transferred to the general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the Exchange 

Act.   

 

RBC’s Remedial Efforts 

 

39. In determining to accept the Offer, the Commission considered remedial acts  

promptly taken by RBC, including closing the accounts for the flippers; implementing additional 

surveillance measures to identify flipping activity and monitoring secondary market purchases to 

identify improper communications; and enhancing controls for delivery-versus-payment 

accounts.    

 

IV. 

On the basis of the foregoing, the Commission deems it appropriate, in the public interest, 

to impose the sanctions agreed to in Respondent’s Offer. 

 

Accordingly, pursuant to Sections 15(b), 15B(c), and 21C of the Exchange Act, it is 

hereby ORDERED that: 

 

A. Respondent cease and desist from committing or causing any violations and any 

future violations of Sections 15(a)(1) and 15B(c)(1) of the Exchange Act. 

 

B. Respondent is censured. 

 

C. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of  

$552,440 and prejudgment interest of $160,886.97 the Securities and Exchange Commission for 

transfer to the general fund of the United States Treasury, subject to Exchange Act Section 

21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to SEC Rule of 

Practice 600. 

 

D. Respondent shall, within 10 days of the entry of this Order, pay a civil money 

penalty in the amount of $150,000 to the Securities and Exchange Commission, of which a 

total of $37,500 shall be transferred to the MSRB in accordance with Section 15B(c)(9)(A) of 

the Exchange Act, and of which the remaining $112,500 shall be transferred to the general 

fund of the United States Treasury in accordance with Section 21F(g)(3) of the Exchange Act.  

If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717. 

  

E. Payments must be made in one of the following ways: 

 

(1) Respondent may transmit payments electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request; 

 

(2) Respondent may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or 
 

http://www.sec.gov/about/offices/ofm.htm


 

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

 

Enterprise Services Center Accounts Receivable Branch HQ Bldg.,  

Room 181, AMZ-341 6500 South MacArthur Boulevard, Oklahoma  

City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter 

identifying RBC as a Respondent in these proceedings and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Assistant 

Regional Director Kevin B. Currid, Division of Enforcement, Securities and Exchange 

Commission, 33 Arch Street, 24th Floor, Boston, MA 02110. 

 

F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 

be treated as penalties paid to the government for all purposes, including all tax purposes.  To 

preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 

Action.  Respondent shall not argue that it is entitled to, nor shall Respondent benefit by, offset or 

reduction of any award of compensatory damages by the amount of any part of Respondent’s 

payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 

Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a 

final order granting the Penalty Offset, notify the Commission’s counsel in this action and pay the 

amount of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall 

not be deemed an additional civil penalty and shall not be deemed to change the amount of the 

civil penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor 

Action” means a private damages action brought against Respondent by or on behalf of one or 

more investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding. 

 

By the Commission. 

 

 
      Vanessa A. Countryman 

      Secretary