Let SEC Lead on Disclosure

SAN ANTONIO — A bond attorney urged colleagues here on Wednesday to do more for “market betterment” by supporting legislative efforts to give the Securities and Exchange Commission authority to develop “a uniform baseline disclosure rule.”

The remarks by Andrew Kintzinger, a partner at Hunton & Williams LLP in Washington,  came as the National Association of Bond Lawyers convened for a workshop amid market turmoil not seen since the mid-to late-1980s and mid-1990s, when Congress passed the Tax Reform Act of 1986 and the SEC developed and implemented Rule 15c2-12.

A draft bill, being floated by Reps. Mike Quigley, D.-Ill., and Patrick McHenry, R.-N.C., would, for the first time, give the SEC authority to dictate the timing and content of issuers’ disclosure, including interim financial statements.

Two recent proposals by the Obama administration — the American Jobs Act, which was modified but failed to move forward in the Senate earlier this week, and a draft Plan for Economic Growth and Deficit Reduction — have raised concerns about whether the value of tax-exempt interest could be reduced to 28% or varying annual levels, some of which could be even lower.

In a 30-minute speech during Wednesday evening’s general session, Kintzinger referred to the Quigley-McHenry bill but said it was hard to see it making its way through Congress.

Still, he said, Rule 15c2-12 is losing its “elasticity” in a changing municipal marketplace. 

Specifically, Kintzinger said there is “little room for more amendment placed solely on the broker-dealers,” and “enforcement proceedings are broadening to fraud findings based on negligence only,” not just “real fraud.”

“If there is not much room to push Rule 15c2-12 any further, do we let enforcement fill the gap,?” Kintzinger asked. “Or is there an issuer rule we can sign on to?”

Last spring, Kintzinger co-taught a Georgetown University Law School class on public finance law with Martha Haines, who resigned in June as the head of the SEC’s office of municipal securities. In his remarks, which traced securities law developments in the past year, Kintzinger said he gives the commission “a good grade here.”

“They and we know that most issuers make good disclosure, even over-disclosure,” he said. “So if most disclosure is good (and most responsible issuers are complying with reasonable guidelines), no harm is done in signing on to a direct SEC rule that requires issuers to comply with a baseline standard. Doing so would capture the issuers who are not making adequate disclosure and strengthen acceptance for all of us and our clients in the market.”

Last spring, SEC commissioner Elisse Walter called for giving the agency authority to set “baseline” disclosure standards in the muni market.

Walter is spearheading a commission-wide review of the municipal securities market that is slated to result in a staff report that will include recommendations for legislative change.

Still, some NABL members stopped short of embracing a baseline disclosure regimen.

John McNally, who has just stepped down as NABL president and is a partner at Hawkins Delafield & Wood LLP in Washington, said he has concerns that such a standard would be too generalized and could spark resistance from issuers.

NABL’s new president, Kristin H.R. Franceschi, a partner at DLA Piper LLP in Baltimore, said the group’s board would take up Kintzinger’s recommendation at a meeting here Thursday.

In her first speech as NABL’s new president Wednesday evening Franceschi said the municipal market is facing a “very real” threat from the recent proposals threatening the tax-exempt interest of muni debt. 

But state and local governments may feel constrained to express their views publicly, she said, because they may feel “they have more to gain from the other stimulus and jobs money at risk in the same legislative package.”

Franceschi said NABL is “not in a position to fix this problem on its own initiative,” but will continue to educate its members about legislative proposals that could affect the muni market.

NABL will also “continue to support efforts” by other market participants to educate members of Congress and “other decision-makers” about “the consequences of various reform proposals,” Franceschi said.

“Grassroots efforts such as these are not pie in the sky, since ultimately, all politics is local,” she said. “Use your own imaginations — there are ways of getting the significance of the proposals across short of a march on Washington.”

Disclosure: From 1992 to 1995, reporter Joan Quigley was a litigation associate in the Baltimore office of DLA Piper LLP, then Piper & Marbury LLP. She knew, but did not work with, Franceschi.

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