SEC Imposes Fine For Improper Research Report

In March 2016, the SEC entered into a settlement agreement with a U.S. broker-dealer, which initiated research coverage of an issuer after being invited by the issuer to participate as an underwriter for that issuer's planned equity offering.  The SEC indicated that this is its first action against a broker-dealer for violating Section 5 in this manner.  The SEC's order can be found at the following link: https://www.sec.gov/litigation/admin/2016/33-10059.pdf.

In this case, the issuer cancelled a proposed secondary stock offering for which the broker-dealer was planning to act as the lead underwriter.  At that point, the issuer planned another offering, and the broker-dealer was invited to participate as a co-manager.   However, according to the SEC, the broker-dealer's participation was made contingent by the issuer upon the broker-dealer commencing research coverage – a "quid pro quo" – which the investment bank agreed to do.  In commencing research coverage, the