Staff of the Securities and Exchange Commission’s Office of Municipal Securities (“OMS”) released a Legal Bulletin (the “Legal Bulletin”) on February 7, 2020, expressing OMS staff’s views on the application of the antifraud provisions of the federal securities laws (generally referred to as the “antifraud rules”) to public statements of issuers and obligated persons of municipal securities. OMS staff prepared the Legal Bulletin in response to questions by market participants about the application of the antifraud provisions to statements of municipal issuers accessible on the Electronic Municipal Market Access (“EMMA”) system and otherwise.
The Legal Bulletin describes prior SEC statements regarding the applicability of the antifraud rules to communications reasonably expected to reach investors and the trading markets. The antifraud rules generally prohibit, in connection with the purchase or sale of any security, the making of any untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. Violations of the antifraud rules may result in injunctions and cease-and-desist orders prohibiting future violations of the securities laws, disgorgement of improperly obtained funds, and civil penalties. To prove a violation of the antifraud rules in the context of public statements, the SEC would need to show the issuer acted either with intent to deceive investors or recklessly with respect to whether its communications would mislead buyers or sellers.
The Legal Bulletin provides certain examples of potential statements which may implicate the antifraud provisions, including statements of issuer officials and information on an issuer’s website. The Legal Bulletin encourages issuers to adopt disclosure policies and procedures
“…which, among other things, designate an individual responsible for compliance with such policies and procedures; establish a periodic training schedule for issuer staff and officials responsible for developing, reviewing, and disseminating issuer disclosures; identify the documents, reports, etc. which customarily contain current information about, for example, the financial and operational condition of the issuer and establish a process by which the issuer makes such documents, reports, etc. regularly available to investors; and identify the place or places at which the issuer makes such documents, reports, etc. regularly available to the public, which may include a central repository, such as the EMMA system, or an investor-relations website.”
Many municipal issuers have already adopted disclosure policies and procedures or have developed a pattern of practice consistent with the SEC’s guidance. We recommend all municipal issuers and obligated persons review current practices in light of the Legal Bulletin.