Clarification: An unidentified individual criticizing the National Association of Bond Lawyers for working with the Securities and Exchange Commission on disclosure is an adviser to the Government Finance Officers Association debt committee who is not an issuer official.


Several municipal issuers and their advisers last week criticized efforts by bond attorneys to help the SEC clarify its forthcoming disclosure guidance, complaining that it does not understand the unique sets of challenges confronted by municipal issuers and does not have the personnel to learn about them.

Members of the Government Finance Officers Associations’ debt committee who met here Thursday and Friday said they felt National Association of Bond Lawyers members were condescending and were working to help the SEC expand muni market regulations rather than providing objective legal advice on  ­interpretive guidance being drafted to address legal ambiguities on disclosure.

“You see NABL’s role as ­somewhere in between the issuer’s and the SEC in working with them to come up with rules that you think would be better,” an individual who asked not to be named told the NABL officials at the meeting. “If you step in the middle and work with the SEC to come up with better guidance, I think you’re taking a role that collectively your clients might not approve of and certainly ... it doesn’t sound like a hand-in-hand relationship with the issuer community.”

The two NABL officials who were invited to speak at the GFOA meeting about the attorney group’s priorities for the year — Victoria “Penny” Rostow, director of governmental affairs, and John McNally, a partner at Hawkins Delafield & Wood LLP here and the group’s president-elect — rejected the charge. They said they are providing impartial legal advice and that it is better to work with the SEC than to withdraw from the process because of concerns.

The NABL officials said they had been asked by the SEC to collect feedback from other major market groups on the forthcoming interpretive guidance on disclosure, which would be the first such guidance since 1994 when the commission adopted the secondary market disclosure rules.

Rostow and McNally said NABL plans to hold a conference call this week. It was unclear Friday if GFOA members would participate.

“We intend to meet with you and other market groups to try to come up with a list of areas for which it would be helpful to have interpretive advice, not a list of, 'Gee, if I were the SEC, this is how I would regulate the market,’ ” McNally said. “At this juncture, they’re simply saying, 'We have an interpretive guidance coming out, how can we as the SEC help you?’ and I can tell you that as a securities lawyer, there are a number of areas where it would be helpful to have that guidance.”

For instance, McNally said, one area in which market participants could use further guidance is whether the 21(a) report the SEC issued in January 1996 with regard to the Orange County, Calif. ,Board of Supervisors should be read to impose responsibilities on issuer officials beyond the obligations they have regarding official statements, such as for rating agency presentations. That report detailed the federal securities law responsibilities of local government officials who authorize the issuance of municipal securities and related disclosure documents.

“What’s the obligation of a legislative body to these other documents?  McNally asked. “It’s unclear.” He said he personally hopes there is no obligation beyond official statements and that “if they give us some guidance, I can back off some of the more conservative positions I’ve had to take because of the ambiguity in their language.”

The issuers critical of NABL repeatedly said they are deeply sensitive about the calls SEC commissioners have made for legislative authority to directly regulate municipal issuers. They said they fear the SEC may attempt to replace several sector-specific best practices that market professionals have developed with its own mandated disclosures.

“Any interaction with that regulatory body that has taken steps of — from my perspective — throwing down the gauntlet, is highly suspect,” said Ben Watkins, director of Florida’s bond division. “I’m concerned that any view of assisting in that effort can be very much sending the wrong signal.

Watkins and others cited as “laughable,” and evidence of the SEC’s lack of muni market knowledge, a proposal by the SEC for the Municipal Securities Rulemaking Board to specially designate on its EMMA site issuers that voluntarily agree to comply with any one of a set of initiatives, including the filing of annual audited financial information within 120 days of the end of an issuer’s fiscal year.

Though the proposal has been modified to also give temporary designations to issuers who commit to filing their financial within 150 days, debt committee members said most issuers would have trouble meeting either proposal.

Kinney Poynter, the executive director of the National Association of State Auditors, Comptrollers and Treasurers, said in an interview Friday that it took states an average of 205 days to file their comprehensive annual financial reports following the end of their 2008 fiscal years.

Poynter — who was not at the GFOA meeting last week but spoke on the issue earlier this month at an MSRB roundtable with major market groups — said there is only one state, Michigan, that is technically able to file its CAFR within about 120 days. However, that state is only able to do so because most of its so-called component agencies — the subunits that report to the state government — operate on a fiscal year that ends on June 30 while the state’s fiscal year ends 90 days later.

Tim Firestine, the chief administrative officer of Montgomery County, Md., and a non-voting member of the GFOA debt committee, said that when the group’s members met with SEC chairwoman Mary Schapiro in September, in part to explain these obstacles, it was clear SEC officials were very familiar with disclosure requirements in the corporate sector but “totally unfamiliar” with those in the muni market.

“Even after you tell them the obstacles, they just revert back to the argument, 'Well, they can do it in the corporate sector, so why can’t you?’ ” Firestine said at the meeting.

The concern was echoed by another GFOA debt committee member, Natalie Brill, chief of debt management for Los Angeles. She said that there is nothing to keep the SEC from bringing enforcement actions against issuers that fail to file accurate disclosures. She was referring to the agency’s existing antifraud authority. McNally said he agrees with Brill, but SEC staff believes enforcement actions are “too blunt an instrument” for issuers.

Watkins also was critical of remarks made in October by SEC commissioner Elisse Walter, who called for the repeal of the 1975 Tower Amendment, which restricts both the SEC and the Municipal Securities Rulemaking Board from collecting bond documents prior to issuance.

McNally said NABL had met with Walter during the previous week, and she acknowledged that calling for the repeal of Tower was largely rhetorical, and that the SEC has no ability or desire to institute a corporate-style approval process of approving disclosures for the 50,000 municipal issuers.

If Walter was not serious about seeking a repeal of Tower, “then she shouldn’t say what she doesn’t mean, because we have to take it at face value and we have to live on a daily basis with whatever is promulgated,” Watkins said.

“I have no confidence at all that SEC staff has the ability or expertise to make improvements to the content of disclosure., Watkins said. However, he added that he takes a “whole different tack on that thinking when it comes to professionals within the industry” and their recommendations.

McNally said the SEC may recognize it does not have the expertise and choose to institute disclosure standards promoted by the National Federation of Municipal Analysts. He noted that the SEC’s lack of expertise was the key reason Congress established the MSRB in 1975.

But Watkins said that “before jumping to regulate” the market, professionals in the industry should work to develop consensus on their own.

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