According to the SEC order, adding a small amount of higher-interest paying mortgages to the backing pool would distort how the collateral was reported by third-party data providers. This practice misled investors about the bond's actual quality and risk, raising serious concerns about the integrity of the bank's operations.
Sanjay Wadhwa, acting director of the SEC's division of enforcement, emphasized the necessity for firms to maintain supervisory processes tailored to their business units, highlighting the regulatory expectations that organizations must uphold their responsibilities seriously.
While BMO agreed to pay a substantial settlement amount totaling over $40 million, they neither admitted nor denied the SEC's findings, indicating a strategic legal maneuver to resolve the situation.
BMO spokesman Jeff Roman expressed the bank's contentment with settling the matter, reaffirming their commitment to maintaining high standards of ethical conduct and improving internal controls and supervisory frameworks.
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