SEC letter to Atlanta may lead to an investigation, lawyers say

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A letter the Securities and Exchange Commission sent the city of Atlanta last week on the subject of possible securities law violations will result in either an informal inquiry or a formal investigation.

Those are the two possibilities arising from the non-public letter alerting Atlanta to a possible investigation into matters related to the Atlanta airport, which the city owns.

“On October 9, 2019, the SEC's Division of Enforcement issued a non-public letter to the city advising it of a preliminary 'fact-finding inquiry' into certain matters related to the Atlanta airport as part of an investigation to determine if there have been any violations of the federal securities laws,” the statement said. “The letter from the SEC expressly indicates that the investigation does not mean that the SEC has concluded that anyone violated the law. The city intends to cooperate with the fact finding inquiry.”

That excerpt was placed into the pricing of airport general revenue refunding bonds priced this week. The original preliminary official statement for those bonds was published on Oct. 1.

The SEC could conduct a Matter Under Inquiry or MUI, which would mean that SEC staff would conduct preliminary analysis to determine if the issuer violated federal securities laws, lawyers told The Bond Buyer. They are preliminary and typically involve incomplete information.

“The threshold determination for opening a new MUI is low because the purpose of a MUI is to gather additional facts to help evaluate whether an investigation would be an appropriate use of resources,” according to the SEC enforcement manual.

The manual also notes that MUIs should be closed or converted into an investigation within 60 days.

The statement could also mean that the SEC will open a formal investigation and issue subpoenas.

Words such as “fact-finding inquiry” in the statement seem to suggest that it would be an MUI, said Kathleen Marcus, shareholder at Stradling law firm. However, the word “investigation” was also used, indicating a formal investigation, Marcus said.

“If this is a MUI," the SEC "would do an initial investigation with whatever the city would provide them on a voluntary basis,” Marcus said. “If they decide that they need to move into a formal investigation and have subpoena power, they will do that through the formal order process and then would normally issue subpoenas for documents and testimony as part of a regular full scope investigation.”

In the case of an investigation, SEC staff may issue a formal order when they find that a formal investigation is appropriate and necessary to determine if a violation of federal securities laws has occurred.

Formal investigative proceedings are nonpublic, unless the SEC decides otherwise.

Any sort of letter or request from the SEC indicates that they’ve at least hit a threshold where there’s a set of facts that could lead to an enforcement action, a securities lawyer said.

The SEC sometimes will decide to do an MUI or if they have solid enough information, they could directly go for a formal order of investigation and issue subpoenas, the securities lawyer said.

“It’s just unclear,” the securities lawyer said. “It’s unclear as to whether it’s just an informal inquiry or an investigation under a formal order.”

It is also unclear who wrote the excerpt, but securities lawyers say the issuer — the city of Atlanta — was involved.

“You can presume that this statement was made with at least the blessing of the issuer,” the securities lawyer said.

The excerpt means that the SEC has some level of concern, another securities lawyer said.

“The SEC has some level of concern that there’s a potential violation and they want to do some additional fact-finding before they determine whether to bring charges or not," the securities lawyer said.

The SEC declined to comment. The underwriters, counsel of the airport bonds and the city of Atlanta did not respond to requests for comment.

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