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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.

SEC to the port authority of NY and NJ

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.

SEC vs Miami

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.

American Flag

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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The Pickholz Law Offices represents U.S. and international clients in securities and white collar cases. The Firm has helped whistleblowers report frauds to the SEC, CFTC, and IRS, and has defended clients in investigations by the SEC, CFTC, DOJ, FINRA, and other financial and securities enforcement regulators.

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Mr. Pickholz has been counsel in many high-profile cases. He was the first attorney ever to win an SEC whistleblower award on appeal to the Commission, which Inside Counsel magazine called one of the five key events in the history of the SEC whistleblower program. On the defense side, Mr. Pickholz has defended clients in the SEC’s COVID-19 investigations, the CFTC’s cryptocurrency cases, and a former US Senator, among others.

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