Securities Litigation

In a May 4 joint public statement, SEC Chair Clayton and Municipal Securities Office Director Rebecca Olsen urged municipal issuers to make voluntary disclosures specific to issuers, and their various outstanding municipal securities, regarding the effect of COVID-19 on present and expected future operating and financial status.

Municipal issuers are obligated under SEC Rule 15c2-12 to provide annual audited financial disclosures and disclosures of certain material events.  The MSRB’s description of the Rule is here.

The SEC’s statement emphasized the relative size and complexity of the municipal securities market (about 1 million outstanding issues versus only 30,000 corporate bonds), and the predominance of retail buy-and-hold investors in municipal markets.  Consequently, less frequent trading in municipal securities may provide less price transparency than equity markets. Additionally, municipal securities may depend on particular, and sometimes narrow, revenue streams for repayment, upon conduit borrowers, or other complexities.

The SEC urged municipal issuers to provide additional and voluntary disclosure of “as much current issuer-and security-specific information as is practicable” regarding the effect of COVID-19 upon present financial and operating status, as well as their planning for, and expectations regarding, future financial and operating conditions.  The statement offered as examples:

• The impact of COVID-19 on operations and financial condition;
• Information on sources of liquidity;
• Information on the availability of, and expectations for, federal, state, or local aid; and,
• Provision of existing reports on related matters as prepared for other governmental purposes.

The statement notes existing protections for forward-looking statements and indicated that the Chair “would not expect good-faith attempts to provide appropriately framed current and/or forward-looking information to be second-guessed by the SEC.”

We first addressed municipal-disclosure issues arising from the coronavirus pandemic in our April 4 post, here.

The public statement is here.