WASHINGTON -- The Municipal Securities Rulemaking Board has hired one of the nation's premier securities attorneys to help convince the Securities and Exchange Commission it should approve the MSRB's proposed electronic disclosure library, which comes up for a vote at the SEC tomorrow, according to sources familiar with the hiring.
Harvey Pitt, who was SEC general counsel from 1975 to 1978, was hired by the MSRB as an outside counsel to answer commissioners' questions on such legal issues as whether the board has the authority to create the proposed Municipal Securities Information Library, Christopher Taylor, executive director of MSRB, said yesterday. Mr. Taylor was contacted after sources revealed Mr. Pitt's hiring by the MSRB.
Mr. Taylor would not disclose the fee the board is paying Mr. Pitt, a partner with the Washington law firm of Fried, Frank, Harris, Shriver & Jacobson. Mr. Pitt, whose specialties include insider trading law, was one of the key defense lawyers for Ivan Boesky, who pleaded guilty to insider trading in November 1986.
Mr. Pitt, a principal architect of the 1975 statute that created the MSRB, met with SEC Chairman Richard Breeden and three other commissioners last week to discuss the proposed electronic library.
Some issuer groups opposed to the library have argued that the MSRB does not have authority to create the facility.
"To me, there is no doubt that the MSRB has very broad authority" to create MSIL, said Mr. Pitt, who stressed that he was not hired by the board to lobby the SEC. "I don't lobby, and I'm not making arguments" for or against the repository, he said.
It is not unusual for self-regulatory organizations such as the MSRB to consult with outside counsel on legal issues and to make such counsel available to answer questions on those issues, he said. "That's something I do for a variety of entities."
Mr. Pitt is hardly the first representative of the municipal market to visit the SEC in connection with the electronic library plan. Representatives of the Government Finance Officers Association, which opposes the library, met with Chairman Breeden two weeks ago to outline its concerns.
Last year, issuer groups generated controversy when they lobbied SEC commissioners on the eve of the panel's vote on Rule G-36, an MSRB proposal related to the library plan. That rule, approved in a 3-to-1 vote by the board following heavy debate, requires dealers to send official statements to the board.
The SEC, which has had the MSIL proposal before it for a year, is expected to approve the system in its open meeting tomorrow, although a lively debate is likely and some dissenting votes are expected.
Government sources say some supporters of the library in Congress have signaled that if the electronic library is not approved, Capitol Hill may take matters into its own hands and enact new disclosure requirements. The system has strong support from dealers, bond analysts, and bond trustees, but only mixed support from issuers.
Issues that could be debated during the SEC meeting tomorrow include whether the board should be allowed to disseminate magnetic tapes containing disclosure information to Wall Street firms and other major market participants other than information vendors. Vendors warn such sales compete directly with them.
Commissioners also are likely to caution the MSRB about using the system t set standards for the content of disclosure documents -- a move the board has pledged repeatedly it will not make. Commissioners also may debate what the makeup should be of groups advising the board on MSIL and how powerful such groups should be.
Under the proposed system, computerized photographs would be taken of the pages of official statements and would be put on magnetic disks. Those disks would in turn be sold to information vendors and individual market participants willing to pay a fee.
Of particular interest to the SEC is a feature called CDI/ES, a voluntary electronic secondary market disclosure system.
The system would be heavily used by bond trustees who want to release market sensitive information about bonds they oversee. Bond trustees are pushing the board to allow them to file some information on paper, but such an amendment to the MSIL proposal would have to be taken up separately by the SEC.
One prominent bond lawyer and former SEC staff member said he hopes the SEC will make some "constructive changes" in the proposal. Paul Maco, a partner in the Boston law firm of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, said that while the new disclosure procedures would be good for the marketplace by providing a centralized source of information, the MSRB could be flooded with a hodge-podge of information with no assurance it will be up to date, since the information will be provided on a voluntary basis.
"It's a high-tech solution to a low-tech problem," said Mr. Maco, who is an official with the National Association of Bond Lawyers. He said buyers of municipal bonds eager to see MSIL in place now have the ear of regulators and Congress, but that issuers should make clear what information they can and cannot supply.
"If it doesn't make sense to provide that information if it's going to be too costly, then the issuers should be able to leave it at that," said Mr. Maco, who was speaking at the GFOA's annual meeting in Denver.
