In the first half of 2013, we continued to observe a trend of increasing annual enforcement activity by the Securities and Exchange Commission, with the SEC pursuing more municipal market enforcement actions in the first half of 2013 than it did in the first half of 2012.

What is different in 2013 so far, however, is the SEC's pronounced focus on the sufficiency and accuracy of the municipal market disclosures provided by state and local governments. While the SEC did not bring a single enforcement action against a state or local government in 2012, it initiated actions against one state and three cities in the first half of 2013, and each of these actions focused on disclosures, including to the secondary markets. Indeed, if July is any indication, the second half of 2013 may see a further increase in enforcement activity relating to disclosures; in recent weeks the SEC has brought enforcement actions against another city and a school district.

The SEC's 2013 enforcement actions emphasize the importance of state and local government issuers' adoption of written policies and procedures-including continuing disclosure policies and procedures-to ensure the timeliness, currency, and completeness of the information provided to investors during and after a bond offering.

The SEC's 2013 enforcement activity demonstrates that, as its enforcement staff has indicated over and again recently, it intends to target individuals as well as municipalities. For example, in April 2013, the SEC filed a complaint against an underwriter, two investment bankers, a developer, a city, the director of economic development for the city, and an Airport Authority (the Authority), alleging fraud in connection with tax increment bonds issued by the Authority in 2006, 2007, and 2008.

Proceeds from the bonds were used to fund redevelopment projects on a former Air Force base. The SEC alleges that due to an improperly inflated $65 million valuation by the developer of new airplane hangars, the Official Statement of the Authority in a 2008 bond offering was false and misleading as it misstated the tax increment available to repay bondholders and the debt service ratio for the bonds. The SEC further alleges that financial professionals involved in the redevelopment projects misappropriated $2.75 million in bond proceeds. The case is currently pending in the U.S. District Court for the Central District of California.

The SEC's enforcement focus also has turned toward disclosures to the secondary markets. In a precedent-setting action in May 2013, the SEC charged a municipality with misleading investors about its financial health in the annual State of the City address, as well as in its financial and budget reports. This is the first SEC action against a state or local government based on statements made publicly, as opposed to including them in the required municipal bond disclosure documents. The action is also the first to cite the failure of a municipal securities issuer to post continuing disclosure information on the Electronic Municipal Market Access (EMMA) website as contributing to the SEC's finding of fraud.

As in the so-called "bid-rigging" cases, the SEC once again demonstrated that tax law violations may also form the basis of securities law violations. In May 2013, the SEC charged a city with fraud for allegedly failing to disclose improper arrangements with the developer of a city parking and retail project that put at risk the tax-exempt status of bonds held by investors. In a related settlement, the city settled possible tax-exempt issues with the Internal Revenue Service pursuant to its Voluntary Compliance Agreement Program.

The SEC also has maintained its scrutiny of public pensions. In March 2013, the SEC charged a state with securities fraud for allegedly misleading investors by failing to disclose the systematic underfunding of its pension plans. The SEC, which also announced a settlement of the case through a cease-and-desist order, said the information was omitted from bond offering documents between 2005 and 2009. This is the second time in its history the SEC has brought an enforcement action directly against a state.

It seems clear that the SEC will continue to dedicate substantial and increasing resources to municipal securities investigation and enforcement. At the same time, the SEC's dedicated enforcement unit-the Municipal Securities and Public Pensions Unit-is awaiting appointment of a new Chief to replace Elaine Greenberg, who announced her departure from the SEC in June. That unit's Deputy Chief, Mark Zehner, continues to serve in that position, and consequently that Unit's proactivity is expected to continue.

John C. Grugan, a partner at Ballard Spahr, advises clients in investigations and litigations conducted by the U.S. Securities and Exchange Commission, the U.S. Department of Justice, self-regulatory organizations, and state securities regulators. He is known for his work in securities litigation, and he has represented numerous public companies and their officers and directors.

Tesia N. Stanley is an associate in Ballard Spahr's Public Finance and Litigation Departments. From 2010 to 2012, Ms. Stanley worked as a senior writer for the Municipal Securities Rulemaking Board. In 2009, she worked as a research specialist for the U.S. Securities and Exchange Commission.