CHICAGO -- The new president of the National Association of Bond Lawyers says the biggest challenge for the bond community in the months ahead will be to resist a secondary-market disclosure system that is not cost-effective.
"I think that we need to be very careful that whatever gets done in the disclosure area is worth it from a cost-benefit standpoint and that we don't fall into the trap of favoring more disclosure because it's good, while ignoring the costs of it," Fredric A. Weber said in a recent interview.
The 43-year-old lawyer, who heads the public finance and administration department at Fulbright & Jaworski, has mostly served as bond counsel in the 15 years he has been in the municipal business. But his colleagues are not apt to ignore what he says about securities law issues. They say Mr. Weber is well versed in all areas of municipal finance.
"He is a Renaissance man of municipal finance, with extraordinary ability and knowledge in state law, securities law, and tax law matters," said Richard Chirls, Mr. Weber's predecessor as NABL president and a partner with Orrick, Herrington & Sutcliffe.
Donald L. Howell, with Vinson & Elkins, concurred, adding, "His intellectual capacities do not stop at the boundaries of the law that affects tax-exempt bonds."
In discussing some of the issues facing the bond industry, he said another big challenge will be to avoid simplification legislation that increases the complexity of tax laws and provides only marginal benefits.
He cited the continual tinkering of the two-year rebate relief law under which issuers of governmental and 501(c)(3) bonds are exempted from arbitrage rebate requirements if they spend most of their bond proceeds within two years. The law, which was enacted in late 1989 but continues to be amended, is now "almost a book in itself," he said.
Under pending simplification legislation, certain issuers with bona fide debt service funds could qualify for marginally better treatment under the law, but only if they meet a complicated new test. "The simplifying exception to rebate ought not to be longer and more complicated than the rebate rule itself," he said.
Mr. Weber said the bond industry needs "more substantial, big-picture simplification" of the laws that affect municipal bonds. Meaningful simplification, he said, would go a long way toward discouraging abuse in the municipal market. "The more complex and the harder the law is to understand, the more disincentive there is to do a thorough job."
"The huge increase in the complexity of the law, combined with low levels of enforcement and the increased competition among firms, creates a lot of pressure on lawyers to arrive at progressively more liberal interpretations of the laws" that affect transactions, he said. And while most lawyers "have done an admirable job of resisting these pressures," there has been some erosion of standards and these pressures are not likely to go away, he said.
Mr. Weber said he supports NABL's call for the Securities and Exchange Commission and the Internal Revenue Service to do more to pursue those in the municipal business who abuse the tax and securities laws.
He said the industry would be better served if the IRS would do random audits of bond deals. The agency, to date, has focused mostly on the Matthews & Wright deals that have been investigated by other agencies and widely publicized as abusive.
Mr. Weber said he feels that "a system of alternative penalties [to taxing bondholders] might be fruitful" for the IRS. But any such system "needs to be initiated by the issuer community because they, indirectly, are the beneficiaries of the improvements that would occur in the marketplace" if alternative penalties were adopted.
"The system that exists now sort of conspires to keep the risks in a transaction silent," he said. A lawyer who is willing to give an unqualified opinion for a risky transaction does not have any incentive to disclose the potential risks because that undermines his opinion. And the issuer does not question the lawyer because "he's better off not knowing about those risks."
"I think that the perception of most issuers is that the risk of their having liability for a wrong tax opinion is fairly remote right now," he said, because they do not believe IRS will tax large numbers of bond issues.
Mr. Weber said he is troubled by recent state efforts to ban political contributions of bond market participants. "It could cause large full-service firms that have corporate clients to choose between dropping out of political activity or dropping out of the public finance business in a state, and neither of those is very attractive," he said. A better approach might be to call for the disclosure of such contributions, he noted.
Mr. Weber said has he no specific goals as NABL's new president other than "to continue to do in a quiet, persistent way the things we do best: educating our own members and others and commenting on proposed laws and regulations." He said he hopes to be able to "return in kind some of the benefit I've gotten out of the organization."
His energy in that regard could be daunting. One NABL member recalls that shortly after Mr. Chirls suggested a review of NABL's committee guidelines, Mr. Weber sent him extensive comments on possible changes. Mr. Weber's quick and extremely thorough response prompted Mr. Chirls to jokingly tell him to lighten up and "get a life."
It is Mr. Weber's tendency to thoroughly analyze and master whatever subject is at hand that wins him high praise from associates and competitors alike.
"He's one of the brightest lawyers in our business," said Steven H. Gerdes, a lawyer at Vinson & Elkins.
"He has a tremendous capacity to become familiar with the background of an issue. He can give you an explanation of exactly why something is included in the bond documents, how it works and the whole history of it," said Monty G. Humble, with the same firm. "And rarely can you find a subject where that is not the case," he said.
Jim Thomassen, chief of public finance in the Texas attorney general's office, calls Mr. Weber "one of the more intellectual bond lawyers' he has known and says that he is "interested in the legal underpinnings" of transactions and "goes beyond the tried and true way of doing something."
John Orr, who works with Mr. Weber, says that "people tend to go to him when they have a really complex issue that requires a careful and very complete analysis."
Mr. Weber's penchant for detail and precision is legendary among those who know him. Mr. Orr recalls that when one member of the firm discovered a mistake in a document reviewed by Mr. Weber, he posted it on Mr. Weber's door. "Everybody made a big deal about it because here was Rick Weber making a mistake. When someone is treated like that, you know they don't make many mistakes," he said.
Mr. Weber has been at Fulbright & Jaworski since 1976. When he first joined the firm, its public finance department consisted of about six lawyers in Houston. Today, the department has about 25 lawyers in Houston, Austin, Dallas and San Antonio. The firm is top-ranked among other firms in Texas as bond counsel so far this year, with 124 issues totaling $1.99 billion through Aug. 31. It is ranked ninth nationally among bond counsel firms.
His own bond counsel practice has focused on more complex financings such as those involving nonprofit hospitals, pollution control and specialty utility districts. He has also served as general counsel to some of the special utility districts and as underwriter's counsel on hospital, structured and secondary market offerings.
More recently he has become immersed in the efforts of the Texas state legislature to reform the state's public school financing system, serving as an informal advisor to key legislators and affected groups. The reform effort began after the courts declared the state's existing system as unconstitutional.
"He has put in a lot of volunteer time on that," said Mr. Thomassen. "There's nothing in it for him in terms of generating business," he said. His involvement is more along the lines of "wanting to see something done here that works."