WASHINGTON -- The Securities and Exchange Commission's enforcement action this week against a Mississippi bond firm did more to improve municipal disclosure than will any broad new package of rules the agency issues in the months ahead, a top bond lawyers' representative said Friday.

"Probably the most important thing that can happen to improve disclosure in the municipal securities market is what appeared on the back of today's Bond Buyer," Amy Dunbar, director of government affairs for the National Association of Bond Lawyers, told issuers meeting at a conference on the SECs pending disclosure proposals.

Dunbar pointed to a press report that the SEC brought fraud charges Thursday against Jackson, Miss., underwriter Thorn, Alvis, Welch Inc.; its president, John E. Thorn Jr.; and the firm's bond lawyer, Derryl W. Peden. The SEC charged them with fraud in connection with seven multifamily housing issues totaling $20 million that were sold by two Mississippi counties in 1992 and 1993.

The SEC charged that the underwriter and bond counsel failed to properly disclose in offering documents that they had funneled more than $1 million in bond proceeds to a developer that then kicked back the money as "contributions" to help finance the purchase and rehabilitation of low4ncome housing projects.

"[This is] the first such case we've seen recently," said Dunbar. "There probably isn't a need for new requirements if the existing laws will be enforced," added Dunbar, who appeared on a panel on the SEC's proposed rule and legal interpretation on disclosure that was sponsored by the Council of Development Finance Agencies.

Comments on the SECs initiatives are due July 15.

The case is the first such action since 1989, when the SEC charged that the New York-based securities firm Matthews & Wright failed to disclose in bond documents that it manufactured millions of dollars in sham bond sales to evade imminent new federal curbs on issuing tax-exempt bonds.

The SEC on March 17 issued a legal interpretation that urges issuers to set up ongoing procedures to disclose material information in a timely fashion to the market to minimize the risk of misleading investors. The release reminds issuers that their disclosures are subject to the antifraud statutes and points to areas that need improvement.

The agency also proposed a controversial rule that would bar dealers from underwriting bonds unless the issuer has pledged in writing to provide ongoing disclosure to a nationally recognized information repository. Dealers could not recommend bonds to customers unless they have reviewed a municipal bond issuer's financial statements.

"Our decision to propose these rules is one that we're still very confident in," Paul Maco, attorney fellow in the SEC's office of general counsel, said in a telephone interview.

"The actions of the enforcement division focusing on municipal activities may lead to the same end -- bettering the market. But it's something that [needs to be] done in tandem. One doesn't obviate the need for the other. It's just a further message to the marketplace that we take the municipal market very seriously," said Maco, who appeared on another panel at the council conference Friday.

James N. Smith, executive director of the Council of Infrastructure Finance Agencies, questioned during Friday's panel discussion whether the SEC has adequately "quantified" the need for the rules and their cost to the market.

"I haven't had a lot of experience with SEC regulations. But I've had a hell of a lot of experience with federal regulation from the environmental and health and safety side," said Smith, who has held senior positions at the Environmental Protection Agency and is considered to be an expert on environmental laws and public finance issues.

"I'm puzzled by what precipitated" this regulation, Smith said. "Is there analytical information ... or is it mainly anecdotal," he said, citing extensive press reports about former financial adviser Mark S. Ferber, whom he described as the "Typhoid Mary of public finance."

Ferber, Smith said, "hit Massachusetts, New Jersey, the District of Columbia, Michigan, and a few points west for some of his shenanigans. Is he an anomaly or is this something that permeates the market?"

Smith said that the Office of Management and Budget requires federal agencies to evaluate the economic impacts of rule proposals. "Anything over $50 million becomes a major regulation," which requires the agency issuing the regulation to do a detailed analysis of its impact on small businesses and others, he said.

"I would suspect that the impact of [the disclosure rule] on the market, particularly if it reaches into the pools in the conduit market area, is far in excess of $50 million. Right now in the proposed regulations they are asking us to quantify the impact of the regulations. Nice try," said Smith, who charged that the SEC is "sidestepping" its responsibility.

Maco declined to comment on Smith's statement, But he noted that the SECs proposed rule includes a "regulatory flexibility analysis" that states that the amendments could "impose some additional costs on small broker-dealers and municipal issuers."

The SEC statement says, "Nonetheless, the commission is of the view that many of the substantive requirements of the rule amendments already are observed by broker-dealers and issuers as a matter of business practice."

The agency requested comments on the issue.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.