SEC Charges 71 Municipal Entities With Making False Statements

Chris Gaetano
Published Date:
Aug 24, 2016

The Securities and Exchange Commission, as part of an initiative to improve disclosure quality from municipal issuers, has charged 71 entities with offering documents with materially false statements or omissions about their compliance with continuing disclosure obligations. The SEC charge involves a wide variety of different entities from across the country, from an Alabama board of education to a Wyoming community development authority.

Not even New York was spared. The SEC named in its charge Franklin County, the City of Ithaca, Syracuse University, and the Westchester County Health Care Corporation.

The charges generally have to do with the failure to provide continuing disclosures when issuing a municipal bond sale. The disclosures are generally meant to reflect the financial or operating condition of the government or agency issuing the bond over time, as well as specific events occurring after issuance that may have an impact on the ability of the issuer to repay the bond, the value of the bond if it is bought or sold prior to its maturity, the timing of repayment of principal, and any number of other key features of the bond.

The SEC complaints against each of the New York entities says that they "failed
to comply in all material respects with its commitment to provide certain types of
continuing disclosure within the timeframes set forth in the continuing disclosure
agreement."  After this failure, these entities are said by the SEC to have none the less issued new municipal securities anyway, and failed to disclosure their previous non-compliance with municipal securities rules. 

“The diversity among the 71 entities in these actions demonstrates that continuing disclosure failures were a widespread and pervasive problem in the municipal bond market,” said Andrew Ceresney, Director of the SEC Enforcement Division. “The MCDC Initiative has brought attention to this important issue and resulted in increased compliance by municipal issuers and underwriters.”

The SEC said that the entities named in the charges settled the actions without admitting or denying the findings and agreed to cease and desist from future violations. Pursuant to the terms of the initiative, they also agreed to undertake to establish appropriate policies, procedures, and training regarding continuing disclosure obligations; comply with existing continuing disclosure undertakings, including updating past delinquent filings, disclose the settlement in future offering documents, and cooperate with any subsequent investigations by the SEC.

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