Muni enforcement cases dipped in 2019
The Securities and Exchange Commission's Public Finance Abuse Unit brought 14 cases in fiscal 2019, accounting for 2% of all SEC actions and a slight decline from the prior year.
The SEC detailed the efforts of the muni unit, as well as the rest of its Enforcement Division, in its fiscal 2019 annual report released Wednesday. The 14 total enforcement actions was down a case from 15 in fiscal 2018, which in turn was a decline from fiscal 2017. The small decreases are in line with what market participants have observed to be a turn away from the "broken windows" philosophy that previously governed the Enforcement Division.
"By any measure, we believe the division had a very successful year," the report stated in a message from Enforcement Co-Directors Steven Peikin and Stephanie Avakian. "In Fiscal Year 2019, the Commission brought a broad mix of enforcement actions that addressed a wide variety of misconduct across the spectrum of the securities markets. These cases combated wrongdoing by holding individuals, issuers, financial institutions, and other entities accountable, and by stripping wrongdoers of their ill-gotten gains."
Two muni cases received highlights as "noteworthy" in the report.
The first was a June action in which the SEC charged an underwriter and a municipal advisor in a January 2015 $6 million bond offering for the Harvey, Illinois Public Library District. The district overpaid for its borrowing due to a combination of bad marketing by the underwriter and failures of the MA to protect the client, the SEC alleged. The case is still being litigated by the advisor, Brandon Comer, who maintains his innocence of any wrongdoing. The underwriting firm, IFS Securities, was shortly thereafter crippled by multi-million dollar losses incurred by a "rogue trader."
The second was a March case brought against Keith Borge, former controller for the College of New Rochelle in New York, who was accused of defrauding investors by concealing the institution's crumbling financial situation from public view.
The most active area of SEC enforcement was against investment advisers and investment companies, with 250 total cases accounting for 29% of enforcement activity during the year. There were a total of 862 actions during the fiscal year, including follow-on actions stemming from earlier cases.