WASHINGTON - The Securities and Exchange Commission does not need to consider new disclosure rules or registration requirements for municipal issuers as a result of the Orange County, Calif. controversy, SEC Commissioner Richard Roberts said yesterday.
"I'm not inclined to favor registration. I don't think that's necessary," said Roberts, who has played a key role in many of the reforms that the SEC has promoted for the municipal market.
His comments came as congressional aides said that both the Senate and House Banking Committees may hold hearings in January on the issues surrounding Orange County's bankruptcy filing.
"My own inclination is to finish the [disclosure and pricing] projects that we have underway and not to pursue too much otherwise as far as municipal securities reforms are concerned," Roberts said in an interview.
The one exception to that, he said, is the registration of conduit bonds. The SEC has called for legislation requiring the registration of conduit bonds and should pursue that issue with Congress, he said.
Roberts stressed that these are his initial views because he has not discussed them yet with SEC chairman Arthur Levitt.
Roberts remarks come after Rep. Christopher Cox, a Republican who represents Orange County, said he plans to introduce legislation next year that would subject municipal issuers to the same disclosure requirements as corporate issuers, including possible registration.
Cox contends new disclosure requirements for municipal issuers are needed in light of the events surrounding Orange County.
The county filed for bankruptcy last week after its multi-billion dollar investment pool suffered losses and liquidity problems from derivatives and leveraged investments.
The fiscal crisis threatens not only the county but many of the 180 municipalities and public agencies that put funds in the county's investment pool, as well as bondholders.
Cox managed the campaign of John Moorlach, an accountant with Balser, Horowitz, Frank & Wakeling, who opposed Robert Citron, the county's treasurer, in the recent election. Citron was forced to resign his post last week because of the county's financial problems.
Cox and Moorlach made Citron's investment strategies a key campaign issue but were never able to get Citron to disclose the county's investment portfolio. Cox contends that if Orange County had been subject to the same disclosure requirements as corporate issuers, investors would have been aware of Citron's risky investment strategies and the county's resulting financial problems sooner.
Roberts said he has "a great deal of respect for Cox," whom he called "a very intelligent, hardworking guy."
But Roberts said he thinks the SEC's current disclosure rules and guidelines for municipal bonds will be adequate to deal with any issues that arise from SEC and other investigations of the county.
The SEC adopted secondary market disclosure rules for the municipal market in November. Those rules, among other things, would bar broker-dealers from underwriting bonds as of July 3, 1995 unless they had verified that the issuer has agreed in writing to provide ongoing disclosure of annual financial information and notices of material events that could affect their bonds.
The SEC also issued an interpretative release last March that reminded municipal issuers and other market participants of their disclosure obligations under the securities laws' antifraud provisions and recommended practices to avoid violating those provisions.
In addition, the Municipal Securities Rulemaking Board and the Public Securities Association have ongoing initiatives to make bond prices and other information publicly available to individual investors.
Roberts said, however, that "states need to act" to make sure that their investment policies are sound and that state and local issuers are following those policies, he said.
State investment issues generally fall under the jurisdiction of the states and not the SEC with the exception of potential violations of the securities laws' antifraud provisions, said Roberts.
Meanwhile, at least two congressional committees are planning or considering holding public hearings on Orange County in January.
The Senate Banking Committee, which is chaired by Sen. Alfonse D'Amato. R-N.Y. is planning to hold an Orange County hearing on Jan. 5, one day after the House and Senate go into session, sources said.
The House Banking Committee, which is chaired by Rep. Jim Leach, R-Iowa, is considering holding a hearing in Orange County in mid-January, a congressional aide said.
Rep. Edward Royce, a Republican from Orange County, is expected to join the banking committee as is Rep. Sonny Bono, another Republican from California, committee aides said.
The House Commerce Committee's subcommittee with jurisdiction over securities issues, which has not been formally named, but which is to be chaired by Rep. Jack Fields, R-Tex., may hold hearings on derivatives and municipal bonds that deal with some of the Orange County issues raised by Cox, but not until next spring, a subcommittee aide said. Cox is expected to have a seat on the full committee, if not the subcommittee, sources said.
The subcommittee's sole focus during the first 100 days of the new Congress will be on litigation reform legislation, the aide said.
The House Republican leadership included litigation reform legislation in its Contract With America as one of 10 major pieces of legislation that it wants to push through the House within the first 100 days of the start of the new session.
Most securities law experts hold that municipal bonds could not be subjected to registration requirements unless the so-called Tower Amendment of the Securities Act of 1975 were repealed and the registration and reporting requirement exemptions for municipal bonds in the Securities Act of 1933 and the Securities and Exchange Act of 1934 were removed or substantially modified.
The House Commerce subcommittee aide noted aide when the telecommunications and finance subcommittee held hearings on municipal bonds last year, "there appeared to be bipartisanship agreement that repeal of the Tower Amendment would not be good public policy."
"There also was agreement that better municipal disclosure was needed," he said. "But municipal market participants have been working with the Securities and Exchange Commission to improve disclosure."
"Hearings may be held [next year] to continue congressional review in this area," he said.
