Regulator Urges Better Policing by Bond Issuers

The Securities and Exchange Commission’s municipal bonds chief warned Tuesday that too many bond issuer officials had not learned from 1994’s Orange County bankruptcy and were failing to police disclosure requirements.

Martha Haines, chief of the SEC’s Office of Municipal Securities, told the National Assn. of State Treasurers that the widespread failure to read bond offering documents could land issuer officials in trouble.

“It upsets me when I look at the market today and see that the behavior of the Board of Commissioners of Orange County not only continues to be standard operating procedure for the governing boards and senior officials of most issuers but that underwriters and their counsel allow this noninvolvement to continue,” Haines said.

Haines said it was not enough for issuer officials to rely solely on bond lawyers and underwriters to catch disclosure issues. Elected officials and issuer staff must take a more proactive role because they know about projects and other issues that could be material to investors.

“It’s critically important that members of the governing body and other appropriate officials outside the financing team personally review disclosure documents and speak up if they have questions,” Haines said. “Ten years after Orange County, it’s just no longer reasonable for issuer officials to expect the SEC and others to overlook such conduct.”

Orange County filed the largest municipal bankruptcy in U.S. history in December 1994 after it lost $1.6 billion in a losing bet on interest-rate-sensitive securities in its treasurer’s investment pool.