SEC and FINRA Probing Dealers Over Continuing Disclosure Compliance in Municipal Bond Sales

Today, The Bond Buyer is reporting that the Securities Exchange Commission and FINRA are examining whether securities dealers have checked issuers’ continuing disclosure compliance before selling their bonds.  According to the article,

The probe, which appears to initially be focused in California, has led underwriters to fear enforcement action may be forthcoming, with SEC charging firms for violating its Rule 15c2-12 on disclosure, Municipal Securities Rulemaking Board rules, or even securities fraud laws.

In addition, the Financial Industry Regulatory Authority is examining whether dealers have checked issuers’ continuing disclosure compliance before selling their bonds, leading dealers to fear it could fine them for rule violations, sources said.

The SEC and FINRA probes have spurred firms to start scrutinizing their practices and whether they have policies and procedures in place to track issuer disclosure filings and compliance.

Generally, Rule 15c2-12 “requires dealers, when underwriting certain types of municipal securities, to ensure that the state or local government issuing the bonds enters into an agreement to provide certain information to the Municipal Securities Rulemaking Board about the securities on an ongoing basis.”  This information may include annual financial information and event notices.  See MSRB Bulletin on 15c2-12 here .