Within the past two months, the U.S. Securities and Exchange Commission (SEC) has charged the city of Harrisburg, PA; the state of Illinois; and the city of Victorville, CA, with securities fraud. These actions underscore the SEC’s increased focus on municipalities and municipal securities, in particular with regard to the sufficiency and accuracy of disclosures.
The recent cases and overall uptick in municipal securities investigations and enforcement actions have been a couple of years in the making. In 2010, the SEC Division of Enforcement created a specialized unit to focus on municipal securities and public pensions. In 2012, the commission instituted more than double the number of cases related to misconduct in the municipal securities market in comparison to 2011. More recently, the SEC’s director of the Office of Municipal Securities predicted the SEC will have a bigger presence in enforcement of municipal securities, and SEC Commissioner Luis A. Aguilar remarked, “A greater focus on this market is needed in order to protect investors.”
Each of these developments portends a continuation, if not escalation, of this municipal market enforcement trend.