SEC Probes Into Municipal Securities Violations Expected to Lead to Enforcement Actions

Bloomberg/BNA reports that according to sources, efforts by the Securities and Exchange Commission to come down harder on violations of municipal securities disclosures will soon include the filing of enforcement cases against the issuers of those securities. The regulator’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative had pressed municipal securities issuers and underwriters to self-report previous violations by 12/1/14. Incentive for those efforts included more uniform and less severe sanctions in subsequent enforcement actions.

Issuers and underwriters are required to give the SEC information about previous municipal securities offerings they were involved in that may have included statements that were potentially inaccurate. Unfortunately, issuers and underwriters often do not completely comply with SEC rules about the accuracy of disclosures that are meant to increase investor protections. The initiative was an attempt to deal with such lapses.

Also, in 2014, the SEC announced just one MCDC enforcement case. The action accused Kings Canyon Joint Unified School District of misleading investors because of its failure to provide them with financial data and notices that they were contractually obligated to give out. However, the California school district was not fined and did not have to admit wrongdoing.

This year, 58 municipal securities underwriters were named in enforcement cases. 36 of them are accused of selling municipal securities with offering document that included omissions and materially false statements regarding the bond issuers’ compliance with ongoing disclosure duties. Another 22 municipal securities underwriters are accused of similar allegations, as well as of failing to perform sufficient due diligence that could have allowed them to identify omissions and misstatements before the bonds were offered and sold to costumers. Collectively, the firms paid $4.12M in fines.

Now, issuers are also expected to be hit with SEC enforcement actions for municipal securities violations next.

If you suspect that municipal securities fraud was the reason that you as an investor sustained significant losses, contact The SSEK Partners Group today.

Municipal securities issuers to face enforcement actions, Bloomberg, November 24, 2015

Municipalities Continuing Disclosure Cooperation