CHICAGO - Bond lawyers must "embrace the practicality of market change" and encourage issuers and other municipal bond market participants to voluntarily provide secondary market disclosure to investors, Drew Kintzinger, the new president of the National Association of Bond Lawyers, said last night.
"In doing so, we can borrow upon the experience of our partners in corporate securities who deal in 10-Qs, 10-Ks, and 8-Ks on an ongoing basis," Kintzinger, a lawyer with Briggs and Morgan in Minneapolis, said in his first address to the association's members.
Kintzinger seemed to be responding to Securities and Exchange Commission chairman Arthur Levitt's call, at a meeting of the bond lawyers group last May, for bond lawyers to encourage voluntary secondary market disclosure. The chairman warned the lawyers that the market is changing and that disclosure regulation is inevitable.
At the same time, however, Kintzinger told the lawyers that they "must question proposed rule-making that reaches further than continuous disclosure requirements for corporate issuers, that raises legitimate questions of statutory authority, that may well impose compliance costs in excess of demonstrable benefit, and that may lead to mechanistic continuing disclosure that confuses and stymies rather than informs the investor." In other words, he said, the bond. lawyers group must be both a "progressive market participant" that recognizes the benefits of ongoing disclosure and "an association of lawyer counselors" that speaks up when SEC disclosure proposals seem overly burdensome.
Kintzinger said the SEC's current proposal to mandate secondary market disclosure as well as its specific form and content "paints with too broad a brush."
Under the SEC's proposed amendments to Rule 15c2-12, dealers would be barred from purchasing or selling bonds unless the issuer had pledged in writing to provide financial information and notices of material events to a nationally recognized repository.
Dealers would also be prohibited from recommending bonds to investors in the secondary market unless they had reviewed the issuer's financial statements.
Instead of proceeding with those proposed amendments, Kintzinger said, the SEC should modify its suitability rules and enhance its bond enforcement activities to encourage issuers and other market participants to voluntarily commit to secondary market disclosure.
"Is a regulatory nudge to the market through interpretative guidance, adjustments to suitability rules, and enhanced enforcement helpful or necessary to hasten the pace of voluntary efforts?" he asked lawyers attending the meeting.
"I think so," he said.
The SEC should also consider drafting a rule that would require underwriters to both disclose whether or not an issuer had agreed to provide secondary market disclosure and that would describe the consequences of the issuer's decision, he said.
"Such a rule ... might find the same relatively ready market acceptance that Rule 15c2-12 has," Kintzinger said, referring to the role the SEC adopted in 1989 that requires primary market disclosure.
Kintzinger chafed at SEC commissioner Richard Roberts' recent characterization of the National Association of Bond Lawyers as "losers" and a "disagreeable bunch" for not joining other municipal market groups in signing a comment letter on the SEC's recent regulatory initiatives on disclosure. Roberts reportedly made the remarks last month at a meeting of Northeastern treasurers in Maine.
Kintzinger defended the lawyers' group's decision to refrain from signing the joint comment letter, saying it was "not disagreeability nor a losing of a consensus effort. but rather a reconfirmation of our unique role as counsel in responding to regulatory initiatives.
"It was important to our members that we not risk inconsistency with, or dilution of, our detailed comment letter that tested statutory authority; questioned rather than accepted premises underlying the proposed regulation analysis; and offered alternate approaches and narrowly tailored fixes to current laws and regulations," he said in his address.
Kintzinger noted that Jeffrey Green, the general counsel of the Port Authority of New York and New Jersey, who is a member of both the bond lawyers group and the Government Finance Officers Association, played a major role in achieving consensus among the municipal market groups that signed the joint comment letter.
Kintzinger said the lawyers group has worked with the market groups, the SEC, the Municipal Securities Rulemaking Board, and congressional committees on disclosure and political contributions issues.
"In each of these instances, we pursued overtures for dialogue positively and with enthusiasm," he said.
Turning to tax issues, Kintzinger said the lawyers group supports increased SEC and Internal Revenue Service enforcement actions to identify and crack down on abuses in the municipal market.
"Keeping a focus on real abuse is preferable to overreaching, reactive regulation that impairs the many valid, non-abusive public financings in which we engage," he said.
However. he said, it is important that the bond lawyers work with the Treasury, IRS, and SEC to help "educate [them] on the complexity of transactions that, rightly or wrongly, come into question."
KintZinger said that while the IRS is planning to clarify privateactivity bond issues in rules that are to be proposed later this year, "I do not see easy solutions."
"The answers. as to where to draw the lines between general public use and private business use ... are embedded in a diversity of local and state practices developed over many years," he said.