WASHINGTON -- The words and the methods are different, but the message is the same -- speed up improvements in secondary market disclosure.
That message was effectively hammered home to municipal market participants in differing ways last week.
First, Jeffrey S. Green, the acting general counsel of the Port Authority of New York and New Jersey and a member of the Government Finance Officers Association's executive board, wrote a thoughtful editorial for an upcoming issue of the GFOA's Government Finance Review giving issuers a needed push to improve their disclosure practices.
Mr. Green's editorial, reprinted in last Monday's Bond Buyer, argued that disclosure is primarily an issuer's responsibility. It went on to warn issuers that they risk further federal regulation and higher borrowing costs if disclosure does not improve.
"Although there have been significant improvements in disclosure practices in recent years, the task of improving disclosure has not been fully completed. Issuers, working with their advisers, must take responsibility for more and better disclosure," Mr. Green wrote.
Then, Richard Roberts, who has become "Mr. Disclosure" of the Securities and Exchange Commission, added an exclamation point to Mr. Green's pleas by telling mutual fund managers that the SEC should restrict tax-exempt money market funds from investing in short-term municipal paper of issuers that do not pledge to provide secondary market disclosure.
The need for improved secondary market disclosure, Mr. Roberts said, was highlighted by the problems experienced by tax-exempt money market funds that held variable-rate demand notes insured by Mutual Benefit Life. When the insurer was seized, the funds had to sell the notes but had trouble getting current financial information on the underlying issuers to value the securities for resale, he said.
Another strong argument for improved disclosure also came last week when a trustee bank for the $4.5 million Marsh Oaks housing bond issue in Florida, which is being investigated by the Internal Revenue Service, issued a secondary market disclosure message designed to warn the market that the bonds, which are in technicl default, had been sold by two bond funds.
Without that warning, the bonds could end up in the hand on investors who might be unaware both of the IRS investigation and the developer's failure to make full payments on the project's loan.
The Marsh Oaks incident is a good example of how secondary disclosure can work. The argument by Mr. Green and Mr. Roberts show why the message for better disclosure needs to be repeated over and over gain until ongoing disclosure becomes the rule, not the exception.