Broker-dealer BMO Capital Markets to pay $41M to settle trade supervision lapses

A broker-dealer subsidiary of Toronto-based BMO Financial Group will pay nearly $41 million in penalties to the Securities and Exchange Commission (SEC) to settle allegations that its traders issued misleading disclosures on bonds for three years, causing $19 million in harm to its customers.

New York-based BMO Capital Markets Corp. failed to properly supervise the trading activity of its bond desk, according to the SEC. From 2020-23, BMO Capital traders issued misleading information on the characteristics of mortgage-backed bonds, as well as the collateral backing those bonds, the agency said in a press release Monday. These types of bonds are called collateralized mortgage obligation (CMO) bonds.

BMO Capital sold $3 billion worth of Agency CMO Bonds over that period, the SEC said, without having policies and procedures in place to order internal compliance reviews of bond information shared with customers. The firm also lacked a process to review bond structures against claims made in the company’s marketing materials.