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A Brief Summary of Certain Anti-fraud Provisions of the Federal Securities Laws Applicable to Municipal Bond Issuers

Government entities, such as states and cities, and certain non-profit entities, such as certain hospitals and universities, often need to access the capital markets to obtain funds for various building projects. Tax-exempt bonds are commonly used by such entities because the interest income that is repaid by the governmental entity to the investors who have purchased the particular governmental entity’s bonds (whether directly or through a conduit governmental entity as is sometimes necessary with certain non-profit entities) is typically exempt from federal income tax for such investors. Indeed, a happy, symbiotic relationship exists between government entities which issue tax-exempt municipal bonds and the investors who buy these municipal bonds: government entities are able to obtain funding at reduced interest rates relative to traditional taxable bonds and investors are able to save on federal income taxes. The size of the municipal bond market lends credence to the notion that this is a long-established relationship between government entities and investors; halfway through 2015, the municipal bond market was estimated to have over $3.9 trillion of debt outstanding. Colin Barr, “The New Bond Market: Bigger, Riskier, and More Fragile than Ever,” The Wall Street Journal, October 5, 2015.

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The SEC Signals a New Era of Vigorous Enforcement against Municipal Bond Issuers via its Municipalities Continuing Disclosure Cooperation Initiative

The SEC has been busy heavily scrutinizing whether municipal bond issuers are correctly describing their compliance with certain ongoing continuing disclosure obligations under Rule 15c2-12 of the Securities and Exchange Act of 1934 (as amended, the “Exchange Act”) in bond offering documents used by the municipal bond issuers. This pattern, together with the SEC’s recent tack of imposing civil financial penalties on municipal issuers and their employees and officials in connection with certain material misstatements and material omissions made in a given municipal issuer’s bond offering document, signal a new era of vigorous enforcement taking place at the SEC and should give pause to municipal issuers and their officials and employees whenever they access the capital markets. This is a link to a brief summary of the SEC’s recent tack of imposing financial penalties on municipal issuers and their employees and officials in connection with certain material misstatements and material omissions made in a given municipal issuer’s bond offering document.

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Government Employees Beware – The SEC Has Begun Imposing Financial Penalties on Municipal Bond Issuers and their Employees

In recent years, the Securities and Exchange Committee (the “SEC”) has begun imposing financial penalties on municipal bond issuers and their employees and officials in connection with certain material misstatements and material omissions made in a given municipal issuer’s bond offering documents. Set forth below is a brief look at the SEC’s recent vigorous pattern of enforcement in connection with certain violations by governmental entities and their employees and officials of the anti-fraud provisions of the federal securities laws when going to market.

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Disclaimer: The information in this blog is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this blog should be construed as legal advice from The Eichner Law Firm or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this blog should act or refrain from acting on the basis of any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.