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SEC Fines Local Official $37,500

By Susan Borries Reed, Director of Disclosure Strategy and Services, September 21, 2017

Since 2014, municipal bond issuers have experienced a heightened focus on continuing disclosure for outstanding bond issues and disclosures to the market for failures to comply with these obligations.  Over the past few years, Umbaugh’s client list to which the Firm provides continuing disclosure services has grown to include over 460 filings in Indiana and Michigan.

What brought about this focus? In 2014, the SEC found that from 2011-2014, many issuers sold municipal bonds using offering documents making false statements about their compliance with CD obligations for prior bonds.  Because this lack of compliance was wide-spread, the SEC offered the Municipalities Continuing Disclosure Cooperation (MCDC), a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents.  The MCDC initiative offered favorable settlement terms to underwriters, issuers, and obligated persons that self-reported.  Under this program, the SEC offered settlements to 71 municipal issuers and other obligated persons for violations.  In late 2016, the SEC announced that the MCDC program had concluded, and no additional settlements would be offered under MCDC program.

On August 23, 2017, the SEC announced that a municipal financing authority in Beaumont, California (“Authority”), and its then-executive director (also Beaumont’s city manager) entered into a settlement on charges that they made false statements about prior compliance with continuing disclosure obligations in bond offering documents.  The underwriter also settled charges.  The Authority was charged with negligently failing to disclose a lack of compliance in its offering documents when it sold $32 million in new bonds from 2012-2013, and the settlement results in additional compliance obligations for the issuer.   The local official agreed to settle the charges without admitting or denying the allegations and to pay a $37,500 personal fine as well as being barred from participating in any future municipal financings.  The SEC noted that he approved and signed misleading statements.

So what does this mean for other issuers and local elected officials?  Here are some takeaways that can be gleaned from this case:

  • SEC’s expectation is that issuers follow securities laws, comply with outstanding obligations to provide information to the bond market and do their due diligence when issuing bonds and making statements to the bond market.
  • It is a reminder that the SEC has the legal authority to seek fines and sanctions against local issuers and the local officials involved in approving bond offering documents.  It’s worth the time to make sure that the offering documents are accurate and contain no material omissions.

If you would like more information, please contact us at .(JavaScript must be enabled to view this email address).

Information in this article was believed current as of the date of publication. As you know, changes occur frequently. The information presented is of a general educational nature. Before applying to your specific circumstances, please contact us at


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