WASHINGTON — Among some issuers of municipal bonds, the Securities and Exchange Commission’s Elisse Walter is known for one speech, and one speech only.
During a 2009 address at Fordham Law School, Walter called for the repeal of the Tower amendment, which in 1975 was added to the Securities Exchange Act of 1934. It bars the SEC and the Municipal Securities Rulemaking Board from requiring muni issuers to file pre-sale disclosure documents and also prohibits the MSRB from seeking issuers’ post-sale documents.
Walter, who for the past year has spearheaded the commission-wide review of the muni market, has since distanced herself from those remarks. In a recent interview, she said she made those comments to get people’s attention — a ploy that worked, at least among issuers. She said she hasn’t changed her views so much as her priorities.
She is focused on engaging market participants, including issuers, in a dialogue about revamping the municipal market, especially disclosure.
“We are trying very hard to demonstrate to the issuer community we want to work with them, not against them,” Walter said. “We’re open to discussions on all issues. And we’re happy to hear from people who disagree with us vehemently.”
Later this week, as issuers convene for the Government Finance Officers Association’s annual conference in San Antonio, she may get a chance, at least indirectly.
Although Walter is not slated to speak at the conference, the five-day gathering will feature a session devoted to best practices in disclosure, including an overview of recent SEC activity, according to a brochure posted on the GFOA’s website.
Other groups have plunged into the disclosure fray recently as well.
The National Federation of Municipal Analysts and GFOA are working on best-practice disclosure documents for general obligation debt and dedicated-tax bonds.
Earlier this month, the National Association of Bond Lawyers unveiled guidance to boost pension reporting practices by state and local governments. NABL’s move stemmed from heightened regulatory interest in public-sector pension plans, especially at the SEC, and was designed to jump-start a conversation among muni market participants.
Last week, NFMA chairman Greg Clark, said his group is considering developing a pension-disclosure white paper and would like to invite the GFOA to participate in its drafting process.
The NFMA’s white paper could be completed by early 2012.
It’s not the first time Walter — a former SEC staffer who returned as commissioner at the dawn of the financial crisis — has found herself on the vanguard of a potentially unpopular decision.
Walter grew up in Brooklyn and Long Island, the eldest of three children. From her mother, a Spanish teacher and guidance counselor, she acquired an interest in languages. From her father, a CPA who taught her how to square numbers in her head, she inherited a love for math.
She majored in math as an undergraduate at Yale, where she enrolled in 1969, when the university first admitted women. As a member of the class of 1971 — the first graduating class to include females — she did not always feel welcome, or even understood, on campus.
In her residential college, some of the seniors, all of whom were men, refused to speak to the new undergraduate women.
The cafeteria served sandwiches, trimmed of crusts, to her and her female classmates. That’s what women ate, the kitchen staff reasoned.
After graduating from college, while women she knew pondered futures as doctors and attorneys, Walter enrolled at Harvard Law School.
Her maternal grandfather, a baker in Brooklyn, wondered why she would make such a choice, rather than pursue a career as a teacher, nurse or bookkeeper — the highest professional aspirations for women of his generation.
For Walter, who thought she wanted to become a civil rights attorney, law school proved intimidating, a “Paper Chase” ordeal, steeped in the Socratic method.
Hoping to forge a sense of community, Walter learned to cook and hosted dinner parties. She joined the Harvard Civil Rights-Civil Liberties Law Review and dated classmate Ronald Stern, now a vice president and chief competition counsel at General Electric Co. They married between the last exam and graduation.
After three years toiling as an associate at Arent Fox, Walter switched to the SEC, where she started in 1977 in the office of the general counsel. At the time, commission staff parsed the agency’s divisions into so-called “boys” camps, such as enforcement and market regulation, now trading and markets, and “girls” camps, such as corporation finance and investment management.
A few years later, Walter joined corporation finance, where she rose through the ranks. As the division’s deputy director, she earned plaudits for her role in co-authoring the SEC’s 1994 interpretive release on the disclosure obligations of muni issuers — guidance the commission is currently in the process of updating.
“She was very much an enthusiastic participant in the group working on municipal-market reform,” said Paul Maco, a partner at Vinson & Elkins LLP in Washington and a former director of the SEC’s office of municipal securities. “She brought a very welcome perspective of commission practice in the corporate area and a sensitivity to market needs, particularly investors, with respect to disclosure.”
Later in 1994, Walter left the SEC for the Commodity Futures Trading Commission, where current SEC chairman Mary Schapiro, then the CFTC chair, tapped her as her general counsel.
After stints at the National Association of Securities Dealers and its successor, the Financial Industry Regulatory Authority, where she also worked with Schapiro, she rejoined the SEC as a commissioner in July 2008.
A few weeks later, she was diagnosed with ovarian cancer.
Rather than shroud her illness in secrecy, she spoke openly about her treatment with colleagues and the press. A framed copy of a 2009 USA Today article, in which she discussed her surgery, chemotherapy, and an earlier bout with breast cancer, hangs on the wall in her 10th-floor SEC office.
Last year, Schapiro asked Walter to lead the commission’s municipal market review and hold a series of nationwide field hearings about the state of the muni market. She presided over field hearings in San Francisco and Washington late last year, but budget cuts forced the agency to shelve plans for additional sessions.
For months, she and a core group of staffers have been pressing forward with a report, targeted for release later this year, about improving the muni market. According to the SEC’s website, the report may include recommendations for legislation, rulemaking and changes in industry practice.
Earlier this month, in a speech at the National Federation of Municipal Analysts’ annual conference in Charleston, she hinted at one insight the report might contain.
In her prepared remarks, Walter said that “additional authority from Congress would be quite helpful.”
Responding to a question from a bond lawyer in the audience, she said the SEC should seek authority to set “basic disclosure standards” in the primary and secondary markets.
Perched on a sofa in her office a few days after the Charleston speech, she fleshed out how such a regimen might work.
“You could do a basic disclosure process which would set a baseline disclosure, so if people wanted to compare one municipal issuer against another, they would know the same basic topics would be covered — and that’s, in effect, what is supposed to happen in periodic disclosure under EMMA,” Walter said, referring to the MSRB’s Electronic Municipal Market Access system.
“But I don’t think that in promulgating a basic set of disclosure requirements we need to fall into the trap of trying to make one size fit all. I think there are some bottom-line things that would be across-the-board with respect to at least broad categories, if not all, municipal issuers,” she said. “And then you could consider, secondarily, whether there are particular classes of issuers to whom you want to have specific disclosure requirements apply.”
Issuers remain skeptical, although they herald her emphasis on consensus. In her NFMA speech, she called for a “layered approach” among legislators, regulators and industry participants.
“I thought the tenor of her remarks [was] much more cooperative,” said Ben Watkins, director of Florida’s Division of Bond Fnance. “From my perspective, this is clearly a move in a positive direction.”
But, he warned, increased SEC oversight of the muni market won’t work, especially if the commission seeks to compel changes through regulation.
“There’s no doubt in my mind they won’t get it right,” Watkins said. “They don’t have the depth and breadth of knowledge that practitioners in the industry have.”
Even officials who agree with Walter — conceding that state and local governments, especially small and infrequent issuers, could share more financial information with investors — balk at the notion of federal scrutiny.
“There has been this tension over a long period of time about the regularity and consistency of the information that’s flowing from issuers to investors,” said Frank Hoadley, capital finance director of Wisconsin and a member of the GFOA’s debt-management committee. “My concern is that problem is not a problem that’s addressed through additional regulation.”
Meanwhile, non-issuers take a different view, highlighting the assets Walter brings to her role, including her intellect and work ethic.
“She challenges people to think broadly,” said Lynnette Hotchkiss, executive director of the MSRB. “She is sharp as a tack. She doesn’t shy away from difficult decisions.”
But few discount the difficulties Walter faces.
Previous efforts at legislative change in the muni market have met with a phenomenal level of resistance at the local level, Maco noted.
“When there have been changes made,” he said, “it’s usually been preceded by a significant level of outrageous conduct, such as the bond daddies” — referring to a sweeping muni fraud in the 1970s that, along with New York City’s fiscal crisis, helped spur the MSRB’s creation.
Still, in Walter’s view, enhanced municipal disclosure can be workable, even for small issuers.
“My experience tells me that they’ll be able to do more than they think they can do,” she said.
Given issuers’ recalcitrance, however, and the commission’s limited regulatory authority, she remains a pragmatist.
“We’re not going to solve this problem overnight,” Walter said. “But it would be nice if we could move in the right direction.”
