Local Leaders Need to Know SEC Rules in Advance of Trouble
Shafroth, Frank, Nation's Cities Weekly
In the last couple of years, the federal Securities and Exchange Commission (SEC) has opened a series of enforcement actions against municipal governments and officials. The SEC actions could lead to cities and municipal officials entering into consent decrees confessing federal securities fraud violations. Such federal legal actions could impose significant costs on local taxpayers. The investigations impose immediate problems on cities, both in terms of legal costs to respond to the SEC actions, and in terms of imposing a cloud over a city or town's borrowing authority.
The list of investigations includes both large and small cities and counties, as well as public elected officials of local governments. The SEC notified the cities of Denver, colorado, and Anaheim, Ione, Ervine, Avenal, Wheatland, and Wascoe, in California, as well as elected officials in Orange County, California that it expects t take enforcement action. Much broader action against other municipalities is reportedly under consideration.
Last week, the SEC notified city officials in Wheatland that the city is no longer under investigation by the SEC staff; however, the SEC, as a matter of policy, reserved the right to resume the investigation at a later date. Similarly, the SEC last week indicated it might update Denver city officials this month on the status of its investigation of the municipal bonds issued to finance the new airport.
The actions by the SEC making municipal finance a high priority and the growing list of cities investigated for enforcement actions and monetary penalties raise questions about whether cities and towns--especially smaller and less sophisticated ones--can rely on the advice and expertise of underwriters, bond lawyers, and financial advisors in preparing and issuing notes and municipal bonds. To what extent will municipal officials be permitted t rely on the expert advice of outside professionals, and what will the cost to local taxpayers be? …