Port Authority Settles Charges That It Failed to Disclose Roadway Project's Risks
Commentary by Steven Lofchie
The Port Authority of New York and New Jersey agreed to pay a $400,000 penalty to settle SEC charges that it failed to adequately inform investors of significant known risks related to $2.3 billion in bonds to fund a series of New Jersey roadway projects ("Roadway Projects").
The SEC alleged that the Port Authority:
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responded to the State of New Jersey's funding request for the Roadway Projects by approving $1.8 billion in non-revenue generating projects, and by allocating bond proceeds towards the funding of such projects;
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ignored multiple warnings from its lawyers in connection with the funding of the Roadway Projects;
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disclosed risks inadequately concerning debatable legal authority to fund the Roadway Projects; and
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governed the Roadway Projects inadequately by allowing them to be approved without disclosing any legal risks regarding the projects to the Port Authority's Board of Commissioners.
According to the SEC, the Port Authority is the "first municipal issuer to admit wrongdoing in an SEC enforcement action."
Commentary
There might not have been many cases brought against municipal bond issuers so far, but there have been enough to show that the SEC does not avert its eyes from governmental wrongdoing. For that reason, governmental issuers should scrutinize their offering documents as carefully as private issuers are required to do. Similarly, public officials must try diligently not to make misleading statements that could affect governmental entities' ability to raise capital.