The Securities and Exchange Commission (“SEC“) recently released a report on the municipal bond market which requests Congressional approval for authority to regulate municipal bond issuers and the required content of disclosure documents provided to investors. Under current law, municipal issuers are required to comply with the broad antifraud provisions of federal and state securities laws, but are not directly regulated by the SEC. The SEC currently has authority to regulate broker-dealers and municipal securities dealers, which has an indirect impact on the municipal marketplace. The requested authority would provide the SEC, for the first time, with direct authority over municipal bond issuers.
Significantly, the SEC has not asked to repeal the Tower Amendment prohibiting the SEC from requiring municipal bond issuers to register bond offerings and file disclosure documents with the SEC, a practice which is required of securities offerings of public companies.
The requested oversight authority is a result of what the SEC perceives to be an inadequate availability of information to investors of municipal securities, both in the initial offering of municipal securities and on an ongoing basis. In order to improve the content and timeliness of such information, the SEC has asked for authority to:
- Require that municipal issuers prepare and disseminate official statements and disclosure during the outstanding term of the securities, including timeframes, frequency for such dissemination and minimum disclosure requirements, including financial statements and other financial and operating information, and provide tools to enforce such requirements.
- Eliminate registration and filing exemptions to conduit borrowers of municipal securities that are not public entities, except for certain current exemptions, such as those available for small businesses, private offerings, and non-profit entities.
- Establish the form and content of financial statements for issuers of municipal securities, including the authority to recognize the standards of a designated private-sector body as generally accepted for purposes of the federal securities laws, and provide the SEC with authority over such private-sector body.
- Require municipal securities issuers to have their financial statements audited, whether by an independent auditor or a state auditor.
- Provide a safe harbor from private liability for forward-looking statements of repeat municipal issuers who are subject to, and current in, their ongoing disclosure obligations.
- Permit the Internal Revenue Service to share with the SEC information that it obtains from returns, audits, and examinations related to municipal securities offerings in appropriate instances and with the necessary associated safeguards, particularly in instances of suspected securities fraud.
- Provide a mechanism to enforce compliance with continuing disclosure requirements.
Our Public Finance Practice Group, chaired by Partner Jeffrey DeCarlo, provides preeminent legal service to players in the public finance arena, from governmental and quasi-governmental entities to underwriters and issuers. In a career that has spanned more than 30 years, Jeff has served as counsel on more than 800 bond financings totaling more than $10 billion. The Group handles financing for numerous types of bonds issue ranging from under $1 million to over $500 million. The Group works extensively with our Local Government Law Division in the representation of municipalities, counties, districts and community redevelopment agencies in a variety of public finance capacities.
Author(s): Jeffrey DeCarlo