SEC Fines NY-NJ Port Authority For Not Disclosing Risks

As I was posting my article last week, the SEC announced that
it fined the Port Authority of New York and New Jersey for not
disclosing certain risks about its construction projects to
bond investors.  This follows another recent SEC case that
involved the City of Miami, Florida.  These cases are worth
noting for a potential
SEC whistleblower or
SEC whistleblower lawyer, because they show that the SEC is serious about bringing
cases for municipal securities violations.

The first municipal issuer to admit to securities violations: 
the Port Authority of NY and NJ

The Port Authority of New York and New Jersey (“Port
Authority”) builds, operates, and maintains certain
transportation and other facilities in New York and New
Jersey.  To help finance its projects, the Port Authority
sells public bonds.  It is one of the largest municipal
securities issuers in the country.

To finance certain “Roadway Projects” in New Jersey, the Port
Authority sold $2.3 billion worth of bonds.  To sell the
bonds, the Port Authority had to provide information to
potential investors in what was called an “Official
Statement”.  An Official Statement is similar to the corporate
prospectus that a company must provide in connection with a
public offering of its stock.

According to the SEC’s
Order
imposing sanctions, the Port Authority determined that it had
“no clear path to legislative authority to undertake” certain
of the projects.  Another internal memo referred to “the risk
of a successful challenge by the bondholders and investors.” 
The Port Authority did not disclose these facts or risks to
potential bond purchasers, in the Official Statements or
otherwise.

Among other things, the SEC’s Order required the Port
Authority to hire an independent consultant to review and
issue a report on the Port Authority’s policies and
procedures, adopt “all” recommendations in the independent
consultant’s report, and pay a $400,000 penalty.

Especially noteworthy is that the Order states that the Port
Authority “acknowledges that its conduct violated the federal
securities laws.”  In a
press release
about the case, the SEC noted:  “The Port Authority is the
first municipal issuer to admit wrongdoing in an SEC
enforcement action.”

The first federal jury trial against a municipality:  Miami

In 2013, the SEC brought a case in federal court against the
City of Miami, Florida for making false and misleading
statements and omissions in connection with three bond
offerings totaling $153.5 million.

On September 14, 2016, the jury issued a verdict in favor of
the SEC and against Miami.

That same day, the Director of the SEC’s Division of
Enforcement issued a
public statement
in which he noted that this case was “the first federal jury
trial by the SEC against a municipality or one of its officers
for violations of the federal securities laws.”

He went on to add “We will continue to hold municipalities and
their officers accountable, including through trials, if they
engage in financial fraud or other conduct that violates the
federal securities laws.”

For a copy of the SEC’s court Complaint against Miami, see
here.  For a copy of the SEC’s press release about the case, see
here.

The SEC’s MCDC Initiative

A few years ago, the SEC began what it called its
“Municipalities Continuing Disclosure Cooperation Initiative”
or “MCDC”.  Under the MCDC Initiative, if municipal bond
underwriters, issuers, and others voluntarily self-reported
violations of the securities laws in their offering documents
to the SEC, they could receive better settlement terms or
lighter sanctions.

On August 24, 2016, the SEC
announced
that it brought enforcement cases against 71 municipal issuers
and others under the MCDC Initiative.

That announcement brought the total number of cases that the
SEC had brought under its MCDC Initiative to 143, as of that
date.

At the end of the announcement is a list of parties whom the
SEC entered Orders against.  That list includes parties from
approximately 45 different States.

The MCDC Initiative, and the cases against the Port Authority
and Miami, show that the SEC has been and continues to take
municipal securities frauds and violations seriously.

For the SEC whistleblower and SEC whistleblower lawyer:  links
to other types of SEC cases

Municipal securities frauds and violations are just some of
the many kinds of cases that the SEC has jurisdiction over.

For instance, two weeks ago I wrote about a case that the SEC
brought in connection with an alleged pay-to-play fraud
involving a public pension fund, which you can read about
here.

Some examples of other kinds of cases that the SEC brings can
be found by following the links within that post.

* * *

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