SEC Commissioner Gallagher Remarks upon Stepping up Enforcement in the Munis Market (with Lofchie Comment)
SEC Commissioner Daniel M. Gallagher delivered remarks, which focused primarily on the municipal securities markets, at the 45th Annual Rocky Mountain Securities Conference in Denver, Colorado. Commissioner Gallagher began his remarks by discussing the value of specialized enforcement groups within the SEC. He then refuted the notion that a decrease in the number of enforcement cases means that the SEC is less focused on enforcement. After this introduction, the largest part of the Commissioner's speech focused on the municipal securities markets. He indicated that the SEC would be devoting significantly more resources to this market and, given the effect of such resources, one might reasonably expect to see a rise in enforcement actions. Among other factors which he indicated could contribute to a rise in enforcement were "the risks of municipal defaults or even bankruptcies . . . [that could] create disastrous conditions in this massive retail-dominated portion of the securities markets." In this regard, he expressed concern that elderly investors were a significant part of the investor base for the munis market.
He also noted that the SEC had recently brought a significant fraud case against Victorville as a result of misleading statements made by city officials, as well as against the City of Harrisburg. There are links to these two news stories below, as well as to the recent action against Illinois.
Lofchie Comment: The Commissioner's remarks seemed largely directed at municipal entities and municipal officials. However, broker-dealers engaged in activities related to municipal securities should also take care. In connection with underwritings, broker-dealers should expand diligence efforts to include public statements of any significant municipal officials. In the secondary market, firms should be mindful of the amount of information that is available as to any municipal security and whether that information seems to be sufficient. Further, firms should consider revisiting their suitability standards in this area, given that the Commissioner expressed worries that this is an area in which investors might sustain material losses in the future.
View remarks in full here (links externally to SEC website).See also: City of Harrisburg Charged for Fraudulent Public Statements (with Lofchie Comment).See also: SEC Charges City of Victorville and Others with Defrauding Municipal Bond Investors (with Lofchie Comment).See also: SEC Charges Illinois for Misleading Pension Disclosures (with Lofchie Comment).