WASHINGTON — The Securities and Exchange Commission has stepped up its municipal bond enforcement efforts by creating a special SEC-wide working group that is focusing on muni enforcement cases and the unique issues they present, sources said this week.

The group, which has a total of about 20 members — representatives from each enforcement group in the SEC’s Washington headquarters, as well as from the enforcement sections in its regional offices — is headed up by Elaine C. Greenberg and Mark Zehner, enforcement officials in the SEC’s Philadelphia regional office. Greenberg is an associate regional enforcement director and Zehner is regional municipal enforcement counsel.

But sources stressed that the primary roles of the two enforcement officials are to coordinate conference calls and educational and training sessions on munis, and that they do not have any new enforcement authority over muni cases, the sources said.

The group, which was formed in April, has already held two separate meetings or training sessions on munis for the SEC’s enforcement division and for senior enforcement managers, the sources said.

The creation of the group came after SEC chairman Christopher Cox told The Bond Buyer in March that the commission had launched an initiative to step up enforcement and improve disclosure and accounting in the municipal securities market.

He followed up that interview in July by asking Congress to draft legislation that would: clarify the roles of market participants in muni transactions; create a centralized, Web-based free site, such as the SEC’s EDGAR, for muni bond-related disclosures; require state and local governments to use generally accepted accounting principles set by the Governmental Accounting Standards Board; and provide GASB with an independent source of funding and greater SEC oversight.

“The chairman has signaled his interest in this area and the division of enforcement is responding,” a high-level commission official said.

“While the debates may rage over what degree of 'regional’ there should be, having a vigorous enforcement response is important. The enforcement division took that seriously and that’s why we are doing this. The municipal securities working group is intended to increase the education and understanding throughout the division of enforcement of the challenges that we face in enforcing the municipal securities laws.”

“Munis are just different,” said another source. “You can’t simply take something in the corporate market and think it will work in the muni market.”

For example, the securities laws and rules that apply to initial public offerings in the equities market simply cannot be transferred to the muni market, he said. The market poses other challenges such as the difficulty of proving securities fraud violations have occurred under Rule 10b-5 of the Securities Exchange Act of 1934, an attorney pointed out.

“It’s a complex area of the law where most cases are often cases of first impression and where the conduct at issue [leads to] defenses about custom and practice that cut against arguments of scienter,” the lawyer said.

In order for the SEC to bring 10b-5 charges, it must demonstrate that a firm or individual had scienter and intended to deceive, manipulate, or defraud. But often times, as in past cases of yield burning or auction rate securities disclosure problems, industry officials argue that they are simply following long-standing practices.

The SEC has also set up enforcement working groups on subprime lending, options backdating, and hedge fund insider trading, commission officials said after the groups were disclosed in a recent article in the Financial Times.

But those groups were formed as a result of crises or scandals.

The group on muni securities, in contrast, is not so much the result of a crisis as an acknowledgement that muni securities are very different from equities and corporate debt, and present special issues and problems, one source said.

At the same time, another said, the muni effort can be seen as somewhat scandal-driven in that Cox’s interest in munis stems in part from the widely-publicized disclosure problems and SEC enforcement cases involving San Diego and Orange County, Calif.

He was representing Orange County in Congress in 1994 when the county filed for bankruptcy after suffering huge losses from risky investments it failed to disclosed to investors.

The SEC began investigating San Diego, which bordered his congressional district, for disclosure failures revolving around pension problems.

The SEC sanctioned the city for securities law violations in 2006, after he became SEC chairman.

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