Bond Lawyers Still Nervous About MA Rule

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BOSTON — Securities and Exchange Commission municipal securities chief John Cross on Friday tried to allay the fears of bond lawyers, who continue to have many technical questions about the SEC's new municipal advisor rule.

Cross spoke to the National Association of Bond Lawyers as a member of one of two panels that focused on the municipal advisor rule at the group's Tax and Securities Law Institute conference here. An earlier panel included SEC lawyer Jessica Kane, who also fielded questions from NABL members.

The MA rule, which becomes effective on July 1, will require anyone providing targeted muni advice to state and local governments to registered with the SEC and Municipal Securities Rulemaking Board. The Dodd-Frank Act and rule impose a fiduciary duty on registered MAs to put their muni issuer clients' interests first before their own.

Although the SEC provided detailed guidance on the rule in January, some bond lawyers continue to have technical questions about whether their ordinary dealings, especially in conduit financings, might require them to register as municipal advisors.

One conference attendee asked what drawback a bond lawyer would face if drawn in under the new regulatory regime. Panel member Leslie Norwood, a managing director and associate general counsel who is co-head of municipal securities at the Securities Industry and Financial Markets Association, said lawyers registering as MAs would face a number of duplicative regulatory burdens and would also be subjected to SEC examinations.

Cross told the group to be mindful that the SEC never intended the regime to cover bond lawyers. The rule contains an exemption from registration for lawyers providing traditional legal services and Cross pointed out that the commission's adopting documents acknowledge there is an "inherent" financial aspect in the work that bond lawyers do.

"It's going to be the conspicuous primarily financial advice that the SEC would be looking at with concern," Cross said.

Rick Weber, a partner at Fulbright and Jaworski LLP in Houston who led the panel discussion, said conduit financings become tricky because lawyers acting as bond counsel to a conduit issuer frequently find themselves on phone calls with conduit borrowers. Weber said it is very common for conduit borrowers to see the conduit issuer's bond counsel as "THE bond counsel" and ask them for advice even though they technically represent only the issuer.

The SEC has said repeatedly that it intends to release additional MA guidance prior to the rule's effective date.

Ernie Lorimer, a partner at Finn Dixon & Herling LLP in Connecticut said law firms can do themselves a favor by putting policies regarding the MA rule in place so that lawyers who have doubts about how it may the rule affect them have something to turn to for guidance.

"Having a point person at the firm so that everyone can ask questions about it, I think, is tremendously useful," he said.

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Law and regulation
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