Board Members Beware - SEC Regulatory Authority May Cast Wide Net


Governmental board members and board members of nonprofit organizations may be “in the sights” of the Securities and Exchange Commission (SEC) if their organizations are involved in the issuance of municipal bonds, including tax-exempt bonds. Federal statutes known as the Dodd-Frank Wall Street Reform and Consumer Protection Act recently adopted by Congress (the Act) amended the Securities Exchange Act of 1934 (the 34 Act) to add a new requirement that “municipal advisors” register with the SEC. The definition of municipal advisor, as interpreted by the SEC, is potentially quite broad and could include appointed members of the governing body of an issuer of municipal bonds or the entity borrowing the proceeds thereof. For example, the Act could apply to the board members of a local industrial development authority or a private college.

In addition to the registration requirement, the Act amends the 34 Act to also subject municipal advisors to the regulatory authority of the Municipal Securities Rulemaking Board (the MSRB), impose a fiduciary duty on municipal advisors when advising municipal entities and impose certain record keeping requirements on municipal advisors. Therefore, just by being involved in a municipal bond transaction, these board members could be subjected to the expense of registration, the time requirements to comply with record keeping requirements and, potentially, have their ability to make political contributions limited.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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