WASHINGTON The Securities and Exchange Commission is conducting at least two dozen investigations of possible abuses in the municipal bond market and could bring charges in some of those cases in three to six months, according to SEC enforcement officials.

William R. McLucas, the director of the SEC's enforcement division. said in an interview on Tuesday: "We have a couple of dozen inquiries underway that run the gamut from pay-to-play, [to] how underwriting and financial advisory business is obtained, [to whether] persons associated with the municipal issuer have relations or business with the underwriting firm ..."

McLucas and Gary N. Sundick, an associate director in the division, said the investigations cover potential payto-play situations in which an underwriting firm may have made political contributions to obtain business, conflicts of interest, inadequate disclosure, excessive markups in bond prices, and questionable sales practices.

About half the investigations are being conducted by SEC officials in Washington, and the rest are being handled by regional and district officials, they said.

"I would hope that some of the matters that we are looking at will come to a resolution one way or another some time in the next three to six months," McLucas said when pressed about when the SEC might take action in these cases. The commission would have to approve any recommendations by enforcement officials that charges be brought against firms or market participants.

McLucas would not reveal the targets, or discuss the details or outcomes of any of the investigations, but said, "we are finding some situations that certainly look interesting."

"There are some factual situations that certainly raise a question in our minds about whether the process would have worked the way it worked had all of the facts been disclosed at the time the bond offering was brought," he said.

Market participants believe that some of the SEC investigations may involve political contributions that were made before the Municipal Securities Rulemaking Board's Rule G37 took effect in April. The rule generally bars municipal dealers that make political contributions to issuer clients from doing business with those clients for two years afterwards.

But McLucas said that broker-dealers' political contributions are subject to the securities laws' books-andrecords provisions, which have been in effect for years.

"The securities laws say brokerdealers and municipal securities dealers have to keep books and records that accurately reflect their business," he said.

"If you make a contribution, you can't hide it by putting it down as miscellaneous," he said. "You can't ... put the arm on employees so that they collectively cough up $200 so that you can buy a $1,000 table for a fund-raiser and then reimburse them [by paying them a bonus or travel expense money] so that the firm, in effect, pays for it but the employees write the checks."

The SEC sent letters to about 70 municipal securities firms and their lawyers earlier. this year seeking extensive information about their political contributions.

"We wanted to get a baseline of information to see, at least with respect to a number of firms, what their practices were with regard to municipal offerings generally," McLucas said.

Sundick said the SEC letters were also a "starting point" to determine "if further inquiry was appropriate" into some of the firms' political contributions practices.

The responses to the letters, McLucas said, showed that the firms generally had been making "fairly significant political contributions" and that there was "some level of correlation" between the contributions they were making and the business they were seeking.

"It looked as though those that were competing or seeking the business generally were also those that were contributors in particular jurisdictions," he said.

The SEC also has broad authority under the securities laws' antifraud provisions, which apply to issuers as well as other market participants, McLucas and Sundick said.

The SEC stepped up its municipal bond enforcement efforts after Arthur Levitt became SEC chairman last July, McLucas said.

Levitt, aware of the municipal market' s tremendous growth and increased popularity among individual investors, "believed that there were some legitimate issues about the municipal market that ought to be addressed," McLucas said.

Levitt was concerned about disclosure, price transparency, political contributions, and other issues that affect "the integrity of the process" through which municipal bond issues are brought to market and sold to investors, he said.

The municipal market "is different" from the stock and/corporate bond markets, McLucas said. "You don't have the level of transparency you have in the equity market. You don't have the kind of mandatory disclosure document that is filed with the SEC and that is updated periodically that you have with registrants or issuers of securities," he said.

With corporate issues, he said, "somebody watches every dime. Public companies are not charitable with their expenses. They look at the legal fees and the underwriting fees."

In the municipal market, "when you're talking about the public's money, there is an issue about who's watching the money, who's making sure that every dime spent is spent in an arm'slength transaction for a bona fide purpose and not at a cost to the taxpayer," he said.

During the year, the SEC proposed disclosure, pricing, and other reforms and approved the rule banning pay-toplay practices.

McLucas scoffs at those who suggest that municipal bond reforms are not needed because there has been no evidence, so far, of widespread abuse in the market.

"I would be cautious if I were someone out there saying, 'Well, you haven't demonstrated there's anything wrong and therefore nothing is wrong, leave it alone,' "he said.

"This market probably has not had a very close or thorough look at it," he said. "No one knows, in some cases, what's going on in terms of how these issues are brought to market and who gets the business and why .... "

"The fact that there may not have been, at least so far as it's been publicly aired, a number of massive scandais or serious problems, doesn't mean that there may not be problems with the market that ought to addressed," he said. "Because if we're talking about what's good for investors, we ought to at least take a look the market and make some judgments."

"If everything is fine and aboveboard, then we should have no concern about disclosing it and getting it all out there," he said.

The SEC has been working more closely with the Internal Revenue Service on bond enforcement issues. But both McLucas and Sundick said the IRS can only give the SEC general information, not details about specific cases, because the IRS is prohibited from disclosing taxpayer information to anyone but the taxpayer.

The SEC brought a bond enforcement case against an underwriting firm and official and a bond counsel in Jackson, Miss., in June that revolves around tax law charges, leaving bond market participants to wonder if this was the beginning of a trend.

The SEC brought fraud charges against the underwriting firm, Thorn, Alvis, Welch Inc., its president, John E. Thorn Jr., and bond counsel Derryl W. Peden, in Jackson, Miss. The commission said they failed to disclose that roughly $20 million of bonds sold by two Mississippi counties might not be tax-exempt because of violations of tax law limits.

The SEC says Thorn and Peden paid a contractor more than $1 million from bond proceeds that was then, in effect, kicked back to them when the contractor paid some issuance costs. They violated cost- of-issuance and other limits, thereby jeopardizing the tax-exempt status of the bonds, the SEC says.

Thorn and Peden are fighting the charges by contending that the IRS rather than the SEC should decide tax law violations.

McLucas said their argument is "meritless" because "there would hardly be anything more material to an investor in the municipal market than the tax-exempt status of bonds."

"The practical effect of what they're arguing is, 'You should wait for whatever period of time it might take the IRS to get around to it,' "he said, but "the IRS has a full plate too."

"Our argument," McLucas said, "is that the securities markets and investors are 'entitled to reasonable disclosure of material facts now."

Sundick said the SEC has brought other cases that revolve around tax law questions, including those dealing with tax shelters and the former municipal underwriting firm of Matthews & Wright Inc.

In the Matthews & Wright case, the SEC said the firm failed to disclose that it had closed numerous bond issues in a sham fashion without cash, thereby threatening the tax-exempt status of the bonds.

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