The U.S. Securities and Exchange Commission (SEC) announced on Jan. 10, 2017, that the Port Authority of New York and New Jersey (Port Authority) agreed to admit wrongdoing and pay a $400,000 penalty in connection with disclosure related to $2.3 billion of taxable and tax-exempt municipal bonds.

The Port Authority is one of the nation's largest issuers of municipal bonds to finance transportation projects. The Port Authority will, according to the SEC press release and the form of Cease-and-Desist Order (Order), admit that it omitted disclosures in its relevant official statements concerning the risk surrounding the Port Authority's legal authority to fund certain road projects. In the Order, the Port Authority admits that its legal staff expressed concerns over whether the Port Authority had sufficient legal authority to finance certain road projects. These legal risks were allegedly not disclosed to the Port Authority Board or in its official statements in connection with the sale of municipal bonds used to finance such road projects. The Order finds that the Port Authority knew, or should have known, that known but undisclosed risks surrounding such roadway projects were material to potential investors in making investment decisions. The Order further provides that the Port Authority was negligent for failing to disclose such risk and that disclosure was necessary in order to make certain statements in the official statements, in light of the circumstances under which they were made, not misleading.

In addition to agreeing to pay a $400,000 penalty, the Port Authority agreed to hire an independent consultant to review the Port Authority's policies and procedures for disclosure of legal and governance risks in connection with the sale of municipal bonds. Additionally, the Port Authority agreed to establish written policies and procedures as well as periodic training of its staff relating to bond offering disclosures. This settlement reflects the current trend of the SEC to encourage issuers to implement training and the adoption of written policies and procedures concerning disclosure requirements for municipal bond offerings.

The SEC's announcement does not state that the investigation has been concluded and, consistent with recent enforcement actions, suggests that there may be future enforcement actions brought against staff members of the Port Authority.

Considerations for Issuers

Municipal issuers should take notice of the SEC's current enforcement trends that encourage training of staff and the adoption of written policies and procedures concerning disclosure requirements by issuers of municipal bond offerings.