Harrisburg Charged With Securities Fraud - Securities and Exchange Commission Says City Made Misleading Financial Statements

by Best Best & Krieger LLP
Contact

The inclusion of the public statements of an elected official in allegations of securities fraud could change the traditional relationship between the politicians and their constituency versus issuers and the bond market. Monday, Harrisburg, Pa. made history as the first municipality charged with securities fraud for misleading statements made outside of its securities disclosure. Pennsylvania’s capital, a distressed municipality currently in receivership, failed to provide continuing disclosure, including audited financial statements or material event notifications from 2009 to 2011. Harrisburg is also charged with making misleading statements about its downgraded credit rating and outstanding debt payments. The SEC claims that Harrisburg created an “information vacuum” forcing investors to rely on other public statements, including the Mayor’s State of the City address, which misrepresented the city’s finances.

The charges set a precedent for all municipalities required to disclose material market data, including yearly budgets and comprehensive financial reports, on the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access system. Under the Securities and Exchange Act of 1934, municipal issuers have an ongoing duty to provide accurate and timely public disclosures that inform the trading decisions of market investors. Any information “reasonably expected” to reach the securities market cannot be misleading, even if the statements are not “explicitly intended” for investors. Harrisburg’s adopted budget, posted on the city’s website and the former mayor’s 2009 State of the City address, allegedly fell under these criteria and drove investors to make decisions based on “inaccurate and stale” information. In the corporate sector, public statements by CEOs are often vetted by lawyers and accountants.

Rule 15c2-12 sets forth disclosure obligations relating to municipal issuers and is designed to provide accurate information to investors after bonds have been issued and to prevent fraudulent, deceptive or manipulative practices. The SEC’s investigation of Harrisburg focused on its failure to comply with its continuing disclosure requirement, misstatements regarding payment of $455 million in debt which it had guaranteed, and reference to this “additional challenge” as one that could be “resolved.” Harrisburg has not admitted or denied the SEC findings, but has agreed to desist from future violations and is cooperating with the Commission in taking steps to strengthen transparency. Issuers of public debt should be on notice that non-compliance with continuing disclosure requirements could create an environment in which the investment community relies on public statements. 

For more information on this case or its implications for your agency, please contact Public Finance attorney Kim Byrens or your Best Best & Krieger attorney.

Written by:

Best Best & Krieger LLP
Contact
more
less

Best Best & Krieger LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.