MSRB Puts Advisers On Notice

WASHINGTON — Unregistered municipal advisers will be referred to regulators for investigation and possible disciplinary action, the Municipal Securities Rulemaking Board warned Tuesday.

In a one-page public statement expressing concern, the MSRB said it had become aware of firms acting as municipal advisers without registering with it and the Securities and Exchange Commission, "in apparent violation" of muni rules and the federal securities laws.

"If the MSRB receives information indicating violations of these requirements, it intends to refer the matter to the appropriate regulatory authority for investigation and possible enforcement action," the board said.

The statement comes nearly one year after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As a result of Dodd-Frank, municipal advisers have been required to register with the SEC since Oct. 1, 2010. Muni advisers were also required to register with the MSRB by Dec. 31, 2010.

A final version of the SEC's proposed muni adviser registration scheme, which was released for public comment late last year, is not expected until late 2011. The SEC has received more than 1,000 comment letters on the proposal.

In its notice, the MSRB said some firms are acting as municipal advisers without registering with either the SEC or the board. Some firms are acting as muni advisers while only registered with one of the regulators.

Any municipal adviser that has engaged in muni adviser activities after Dec. 31 without registering with both the SEC and the MSRB "is subject to possible discipline," the board said, adding that such advisers "must register with both regulatory authorities at the earliest opportunity."

They should also inform the MSRB of the circumstances surrounding their registration delay, the board said.

In particular, it said it is concerned that an unregistered municipal adviser "may not be aware of, or may not be giving sufficient consideration to the importance of, the federal fiduciary obligation" owed by muni advisers to municipal entities, such as state and local issuers or public pension funds, under Dodd-Frank.

In general, the fiduciary duty imposed by Dodd-Frank requires municipal advisers to place their clients' interests ahead of their own. The MSRB also encouraged municipal entities to verify the registration status of their municipal advisers with it and the SEC.

If a municipal government or public pension plan has retained an unregistered advisory firm, the MSRB said, the issuer client should "discuss with the firm's representative their understanding of the obligations" owed to the municipal entity under federal and state laws, and the basis for the firm's decision not to register.

"Failures by such firms and individuals to fully appreciate or fulfill their legal obligations may adversely affect the interests of the municipal entities or obligated persons, which the MSRB has a statutory obligation to protect," the board said.

As of Tuesday, more than 660 firms have registered with the MSRB as muni advisers, according to information on the board's website. The MSRB's muni adviser registration data only includes the firm's name and number, not its registration date. Since last September, slightly more than 1,000 firms have registered with the SEC as muni advisers, according to the commission's web site. The SEC's registration data includes firms that have filed initial, amended or withdrawn muni adviser registrations.

Twenty-eight firms have withdrawn their SEC muni adviser registrations, so the actual number of registered firms — including those who have filed initial and amended registrations — is slightly lower than 1,000. The SEC's registration data includes the firm's name, registration number, and location by state, as well as the date and type of registration.

Since Dec. 31, more than 130 firms have filed initial muni adviser registrations with the SEC. Thirty-three firms have filed amended registrations, or withdrawn previous registrations, since Dec. 31.

The SEC's most recent muni adviser registration form was filed on July 2 by Michael DiPerna, president of DiPerna & Co. in Westerville, Ohio.

In an interview, DiPerna said he worked at Robert W. Baird & Co. until last month, when he formed his own adviser firm, prompting him to register.

In his registration statement, he said he provides advice about the issuance of municipal securities, the investment of the proceeds of muni securities, and advice about guaranteed investment contracts.

Asked about the MSRB's announcement, he said: "I think it's probably a good idea."

Other market participants also reacted favorably to the MSRB's announcement.

An issuer group, the Government Finance Officers Association, said it will alert its membership.

"GFOA will be reminding their members that under the Dodd-Frank Act, the financial advisers they contract with must be registered with the MSRB and the SEC, and that state and local governments should verify this information," said Susan Gaffney, director of the group's federal liaison center.

An independent municipal adviser said the MSRB's statement was appropriate, given lingering uncertainty about the regulatory framework, including the municipal adviser definition, which stems from the SEC's proposed registration scheme.

"I'm not surprised that there are these kinds of warnings that are going out," said Robert Doty, president of American Governmental Financial Services Co. in Sacramento.

And an industry group said it had prodded members to register since last fall.

"We've told people, if you're doing that business, you should register," said William Daly, senior vice president of government relations for the Bond Dealers of America.

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