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SEC fines 13 firms over sales of Puerto Rico bonds

By WTOP Staff

The Associated Press

WASHINGTON (AP) — Federal regulators have fined 13 brokerage firms, including Charles Schwab, JPMorgan Securities and TD Ameritrade, accusing them of failing to protect retail investors in sales of high-risk bonds issued by Puerto Rico’s debt-strapped government.

The Securities and Exchange Commission announced the penalties Monday. The amounts are small, from $54,000 against Hapoalim Securities USA to $130,000 for Riedl First Securities of Kansas.

But they are significant because they represent the SEC’s first actions under a rule establishing the smallest amount of municipal bonds that brokerages can sell an investor in a single transaction. Retail investors usually buy securities in smaller amounts, so the rule is designed to ensure that high-risk “junk” bonds are sold only to investors who can purchase bigger quantities and shoulder greater risk.

The SEC said it found 66 cases in which firms sold bonds in amounts below the $100,000 minimum set for a $3.5 billion sale this year of Puerto Rican government bonds.

The 13 firms neither admitted nor denied wrongdoing under the settlement. They were censured by the SEC, bringing the possibility of a stiffer sanction if the alleged violation is repeated. In addition, the firms agreed to review their policies and procedures and make necessary changes to keep them in compliance with the rule on minimum amounts.

Puerto Rico, with a shrinking population and economy, is struggling with $73 billion in public debt accumulated over several decades. The U.S. island territory of 3.67 million people is in its eighth year of recession and bears a 13.5 percent unemployment rate.

In February, credit-rating agency Moody’s Investors Service downgraded Puerto Rico’s debt to junk status. That came a few days after agency Standard & Poor’s downgraded the island’s debt by one notch, prompting the local government to file new legislation aimed at shoring up the economy as it prepared to re-enter the bond market.

Puerto Rico’s government this year has managed its first balanced budget in more than a decade, sales-tax revenues are up and the publicly-owned power company has won breathing room to pay its debts. The developments have bought some time for Puerto Rico to stave off an economic crisis, but it may only be for a while. As the island has tried to pay off its heavy debt by selling bonds, some investors who are critical to keeping the bonds afloat are wary.

The prolonged recession has sent businesses and people fleeing to the mainland U.S. and spooked the investors holding billions of dollars of Puerto Rico’s debt. That has sharply raised the cost of government borrowing and lowered the value of the bonds it has issued.

In addition to Hapoalim Securities and Riedl First Securities, the firms and the amounts they were fined: Charles Schwab & Co., $61,800; Interactive Brokers LLC, $56,000; Investment Professionals Inc., $67,800; JPMorgan Securities, $54,000; Lebenthal & Co., $54,000; National Securities Corp., $60,000; Oppenheimer & Co., $61,200; Stifel Nicolaus & Co., $60,000; TD Ameritrade, $100,800; UBS Financial Services, $56,400; and Wedbush Securities Inc., $67,200.

Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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