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by Mike Caswell

The U.S. Securities and Exchange Commission has imposed $40-million in sanctions against BMO Capital Markets Corp. for misleading clients as it sold $3-billion worth of mortgage bonds. (All figures are in U.S. dollars.) The SEC says that BMO failed to supervise salesmen who changed the "cosmetics" of the bonds to make them more attractive. The practice continued even as a client complained that the firm was "not selling what is advertised," the SEC claims.

The penalties for BMO are contained in an administrative order that the SEC released on Monday, Jan. 13. The $40-million includes disgorgement of $19-million, plus interest, and a $19-million fine. The penalty represents a negotiated settlement, in which BMO did not admit any wrongdoing.

The case arises from so-called "sliver bonds" that BMO sold between December, 2020, and May, 2023, in the United States. The bonds represented pooled residential mortgages that paid returns based on the underlying loans. They are considered a low-risk investment in the U.S., and are often backed by government support.

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