Issuer officials expressed trepidation Saturday about upcoming Securities and Exchange Commission rulemaking and the prospects of SEC bringing more disclosure-based enforcement cases against them.
Government Finance Officers Association debt committee members meeting here said they were happy that SEC muni chief John Cross appears to have listened to concerns that the commission's proposed municipal advisor definition released in 2010 is too broad, and there is a growing sense that the new definition will contain certain exemptions, such as for dealers seeking to be underwriters.
But other issuer officials worried that it might still cause headaches. One debt committee member told colleagues that certain contractors, who provide advice as part of their work, sign contracts that might be similar to those of municipal advisors if the rule is too broad, even though the services they provide seem to be far from what regulators intended to cover.
"I have trash haulers with contracts that could be considered similar, but I can't register this guy," the official said. "Is he going to be named a municipal advisor?"
He added that the SEC should make the rule as narrow as possible, so that an MA relationship exists only if the advisor is providing services related to bonds and investments.
"I just want clear and common horse-sense language that says bonds and investments," he said.
Others expressed some skepticism that the language would turn out to be too narrowly tailored when the commission does release the definition, which is expected to be later this year. Committee chairman Ben Watkins, director of the Florida division of bond finance, said the SEC rule and subsequent rulemaking by other regulators will probably be a process that takes a bit of time to settle in.
"All we can really do at this point is cross our fingers and hope that they come up with something that is much more practical and much more workable," Watkins said.
The committee also discussed recent SEC enforcement actions in Harrisburg, Pa. and South Miami, Fla., which one government official described as an "attention-getter." A securities lawyer warned the committee that what is likely happening now is that the first cases the SEC's three-year-old pensions and enforcement unit took on when it was created are beginning to come out. The SEC is sending a message that it will target issuers who do not abide by disclosure rules, the lawyer said.
"You going to see a lot more cases like this, probably," the lawyer said, noting the SEC chose not to target the financial professionals directly involved in both cities' woes.
Harrisburg failed to file its continuing disclosures on time, leading the SEC to charge it with offering up inaccurate information in other public ways, such as a speech made by the mayor. South Miami failed to disclose to investors that it took actions that jeopardized the tax-exempt status of its bonds. In both cases, the SEC declined to target individuals.
"I think that is a clear signal," the lawyer told the committee, adding that there will probably be some political pressure for the SEC to finally start charging individual financial professionals.
Watkins told his colleagues that the cases provide a good example of how they need to do proper continuing disclosure to save their local elected officials from some trouble.
"If you don't, anything they say can and will be used against them," he said.
