Members of Generation X believe they will need to save at least $1 million before they can retire. Who can help them save it?
By Cyril Tuohy
The Securities and Exchange Commission (SEC), strapped for financial examiners and enforcement personnel, wants municipal bond issuers and underwriters to report violations before its examiners find out about them.
“Those who do not self-report and instead decide to take their chances can expect to face increased sanctions for violations,” Andrew J. Ceresney, director of the SEC’s Enforcement Division, said in a statement.
Municipal bond issuers and underwriters who self-report violations of securities laws will be treated to “favorable” terms under the Municipalities Continuing Disclosure Cooperation (MCDC) initiatives, the SEC added.
Self-reporting Issuers and underwriters must list the name of the lead underwriters, the municipal advisor, bond counsel, underwriter’s counsels and the contact information for the person primarily responsible within the issuers or the underwriter.
States, counties, cities and school districts, along with public highway or infrastructure improvement agencies, issue bonds to raise capital and pay for the project. Broker/dealers or underwriters buy the bonds from the issuer and sell the bonds to investors.
The favorable terms will be extended to issuers and underwriters who report having made inaccurate statements in bond offerings and prior compliance with disclosure obligations under Rule 15c2-12 of the Securities Exchange Act of 1934, the SEC said.
SEC officials have requested $1.7 billion for the 2015 fiscal year, an increase of 31 percent over the current year. The increase would enable the SEC to add 639 positions, nearly half of them for exam personnel in the Office of Compliance Inspections and Examination.
Broker/dealers and underwriters are barred from buying or selling municipal bonds unless issuers are “committed to providing continuing disclosure regarding the security and issuer, including information about its financial condition and operating data,” the SEC said.
LeeAnn Ghazil Gaunt, chief of the Enforcement Division’s Municipal Securities and Public Pensions Unit, said the disclosure cooperation initiative is designed to “promote improved compliance by encouraging responsible behavior by market participants who have failed to meet their obligations in the past.”
Last July, the SEC charged the West Clark Community Schools and Randy G. Ruhl, the Indiana school district’s bond underwriter and head of the public finance and municipal bond department at City Securities, with fraud in connection with a $31 million bond offering in 2005.
City Securities, an Indianapolis broker/dealer, is alleged to have “fraudulently obtained reimbursement from bond proceeds for expenses unrelated to the issuance of bonds,” the SEC said.
The broker/dealer lavished golf trips and sporting event tickets on officials representing municipal bond issuers, and then wrote off the expenses associated with the gifts as operating costs. The expenses were simply billed back to their clients, the municipal issuer, without the issuer’s knowledge, the SEC said.
City Securities agreed to pay $579,446 to settle the charges, according to the SEC.
Jenny Peters, a spokeswoman for City Securities, said in a statement that the SEC’s administrative proceeding “ultimately has made City Securities a better company.”
“To that end, we have strengthened internal controls, hired a non-producing manager in our Fixed Income Capital Markets division and enhanced our internal continuing education program,” she said in an email to InsuranceNewsNet. “Rule 15c2-12’s disclosure and due diligence requirements will continue to be a priority for our firm as we work with issuers.”
Ruhl agreed to pay $38,475 in penalties and interest. He is permanently barred from “a supervisory capacity with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent or credit rating agencies,” the SEC said.
The school district has agreed to implement tighter disclosure policies and to improve staff training in bond offerings and disclosure processes, the SEC also said.
Ceresney, said it was the first time that the SEC had brought charges against an issuer of municipal bonds for falsely claiming that it had complied with disclosure obligations agreed to in prior bond offerings, he said.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the wake of the financial crisis, called for more disclosure around the underwriting and distribution of municipal securities, a comparatively opaque corner of the financial markets.
Last year, the SEC required that municipal advisors for the first time submit to a “registration regime,” a new policy that takes effect later this year.
The registration policy was implemented in an effort to track and regulate who is dispensing advice in financial transactions involving millions of dollars in public funds.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at email@example.com.
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