NEW YORK — Regulatory officials, analysts and lawyers told state treasurers Wednesday that their approaches to municipal bond disclosure are of the utmost importance in the wake of recent Securities and Exchange Commission enforcement actions.
Their remarks were made at the National Association of State Treasurers Issues Conference, the final conference of NAST president Manju Ganeriwala, who is Virginia’s treasurer. She will be replaced as NAST president by Utah treasurer Richard Ellis in January, but stressed the importance of the disclosure discussion to kick off the group’s final meeting of 2013.
Oregon Treasurer Ted Wheeler, who moderated the three-member panel, told his colleagues close attention to their disclosure efforts is paramount in the wake of high-profile SEC enforcement actions against Harrisburg, Pa., South Miami, Fla., and others.
The past year has been notable for a string of enforcement actions and public statements by SEC officials indicating an increased focus on the muni market, including holding issuers and issuer officials more accountable for violations of securities laws. SEC officials have indicated that high-profile public officials could be charged in some cases, if they find merit in doing so.
“Because of this increased scrutiny, it’s more important than ever,” Wheeler said.
The panel featured Municipal Securities Rulemaking Board chairman Daniel Heimowitz, National Federation of Municipal Analysts industry liaison William Oliver, and Hawkins Delafield & Wood LLP attorney Kenneth Roberts. Heimowitz told conference attendees that most issuer disclosure failures are probably benign, but could be avoided with a better approach. The MSRB does not regulate issuers, but does provide the EMMA website for disclosure information as well as educational resources.
“It’s a critical component of what we do at MSRB, Heimowitz said, noting that continuing disclosure has been a personal interest of his for decades as well as a current professional one in his role as an investment banker at RBC Capital Markets. “Investors need that information,” he continued.
Heimowitz said that while issuer failures to provide accurate and timely disclosure as required by securities laws might not be malicious, in many cases such as in Harrisburg, the focus on the issue was just not there among the issuer officials responsible for handling it.
“There wasn’t a disciplined approach to thinking about disclosure,” he said.
Heimowitz highlighted the MSRB’s latest efforts, including new EMMA issuer homepages grouping bonds geographically and the board’s issuer toolkit. The MSRB is also actively reaching out to small, and medium-sized issuers, he said, because those are the ones most likely to be struggling with disclosure obligations.
“That is where a lot of the friction is,” Heimowitz said. “A lot of the concern.”
Oliver called Harrisburg a “watershed moment,” and told conference attendees to be mindful of what their obligations are and to stay in control of the disclosure process. Putting rating agency reports online for investors to see is good practice, but does not come close to fulfilling disclosure obligations because those reports reach such a narrow segment of the market, he said. Oliver also warned treasurers and their staff not to allow the disclosure process to be hijacked by lawyers, underwriters, financial advisors, or other professionals. Those market participants might have good input, but should not be running the show, he said.
“You decide what needs to be disclosed: how, when and to whom,” Oliver told the gathering.
Roberts cautioned that the SEC might be “drifting toward a more subjective test” for whether information is material and therefore required to be disclosed to investors. He also added that the SEC is not likely to step forward and provide more safe harbor guidance for issuers, as bond lawyers suggested the commission do in 2010.
The NAST conference concludes on Thursday.
