Investment bank Canaccord Genuity agreed to pay $550,198 in fines and disgorgement of profit to settle allegations that it broke securities laws when it initiated research coverage of a company that had recently hired Canaccord to underwrite a stock offering.
The Securities and Exchange Commission said in a March 23 document summarizing the case, that it is the commission’s first action against a broker-dealer for violating Section 5(b) of the Securities Act by initiating research coverage on a prospective underwriting client. Section 5(b) makes it illegal to issue a “prospectus” for a securities offering that doesn’t meet the SEC’s requirements.
Canaccord initiated research coverage in April 2012 on the company whose offering it would underwrite. The first research report included a “buy” rating on the company’s stock and a price target of $22, which was 60% higher than where it was trading at the time.
Two days earlier, Canaccord had been invited by the company to participate as an underwriter in a secondary offering that the company was planning for May.
Then, two days after the research report, the company cancelled its plans for the May offering and instead decided to do an accelerated offering, with Canaccord as the managing underwriter for the U.S. portion of a $40 million deal that would be sold in the U.S. and Israel.
The SEC did not identify the company or the analysts or investment bankers involved in the situation. Representatives of Canaccord did not respond to a request for comment.