One day after the Securities and Exchange Commission charged Harrisburg, Pa., with securities fraud for providing misleading information about its deteriorating finances, some critics questioned whether the agency had done enough, and whether federal officials would still pursue individuals responsible for the spiraling debt that has impoverished Pennsylvania’s capital city.

Harrisburg on Monday settled with the SEC by agreeing to fully disclose financial information in the future. The agreement involved no fines or jail time, although the U.S. Attorney’s Office for the Middle District of Pennsylvania in Harrisburg acknowledged without elaborating Tuesday that it is reviewing the SEC’s findings.

Mark Schwartz, who represented Harrisburg’s City Council in its failed attempt to file bankruptcy in 2011, said the SEC fell way short.

“This is a farce. An absolute farce,” said Schwartz, a Bryn Mawr, Pa., solo practitioner who quit last summer because he was never paid. “What kind of sanction is this? ‘Don’t do it again.’They treated the city of Harrisburg the same way they treat a podunk water authority with a one-armed secretary in the middle of nowhere that missed a piece of paperwork.

“What’s the upshot? The people who committed the financial equivalent of murder got away with it. Typically the regulatory agencies don’t punish the issuers or the bondholders. They punish the professionals. Linda Thompson or Steve Reed weren’t sitting at their desk and looking at their calendars saying ‘oh, it’s April 15, we have to do continuing disclosure.’ It’s the bond lawyers, the ones who get so well paid,” said Schwartz.

“In a case like this, the professionals should have to disgorge fees. There’s precedent for that,” said Schwartz.

Thompson has been Harrisburg’s mayor since 2010. Reed, her processor, held the office for 28 years.

The city is staring at roughly $350 million of bond debt that it cannot pay, largely from financing overruns to an incinerator retrofit project. Harrisburg has missed its last three biannual general obligation bond payments, most recently March 15, and is under state receivership.

David Unkovic, Harrisburg’s first state-appointed receiver, abruptly quit the position in March 2012 after only four months on the job, citing pressure he received from Gov. Tom Corbett’s administration, lobbyists and lawmakers after saying that major creditors should make concessions as part of Harrisburg’s financial recovery.

In his handwritten resignation letter to the Commonwealth Court of Pennsylvania, Unkovic said he found himself “in an untenable position in the political and ethical crosswinds.” Retired Air Force general William Lynch succeeded Unkovic.

Unkovic declined comment this week.

“Dave Unkovic, great martyr that he is, didn’t pursue anything while he was receiver,” said Schwartz.

Anthony Sabino, a Mineola, N.Y., lawyer whose expertise includes white-collar crime and securities regulation and litigation, also said federal officials should not stop at an agreement that appears to have little consequence to Harrisburg, given its already dire straits.

“Frankly, what one hopes to see is that the commission, and better yet the Justice Department, look into the individuals who disseminated this allegedly misleading information.  After all, bad financial information doesn’t just grow off a tree. It’s put out there by individuals,” said Sabino, a law professor at St. John’s University. “If so, they should be held accountable for misleading bond buyers, and endangering the financial health of their city.”

Local attorney William Cluck, who is chairman of the Harrisburg Authority public works agency but spoke strictly on his own behalf, called Monday’s action “underwhelming.”  Asked if advisors and other professionals could avoid prosecution even if guilty, Cluck answered: “I don’t know. If this is all that happens, yes, but I don’t think this will be all that happens. I think it’s only the beginning.”

Among other accusations, the commission said that even though Moody's had lowered Harrisburg's general obligation bond rating to Baa1 by December 2008, Harrisburg listed the GO rating as Aaa, based on its insurance. The city passed the budget that month.

The SEC also charged that the budget did not reveal payments for which Harrisburg was likely on the hook as guarantor of $455 million of outstanding debt of subsidiary agencies, including the Harrisburg Authority, which owns the incinerator.

“We shall end 2008 with a surplus,” Reed said while presenting his budget to the City Council at the time.

Thompson, in a statement issued late Monday, called the settlement “a turning point in the city’s financial history.”

She also said Monday that “as a condition of the settlement with the SEC, and as specifically required by [federal regulations], I am prohibited by law from discussing this matter further in any public statement.”

In not fining the city, SEC officials considered Harrisburg’s financial plight.

“I’m glad the city doesn’t have to pay, because we’re insolvent as it is,” said city Controller Dan Miller, who will challenge Thompson in the May 21 Democratic mayoral primary. “It seems like a slap on the wrist.”

Nor will the city suffer any further in the bond markets, with its reputation already at low ebb. “This is something you don’t read about very often,” said James Spiotto, head of the bankruptcy practice at Chapman and Cutler LLP.

Eric Papenfuse, another Democratic mayoral candidate and the owner of the Midtown Scholar Bookstore in Harrisburg called Monday a sad day for the city. “We’ve hit a new low,” he said.

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