Outlook for Municipal Securities Arena in 2016
December 28, 2015 1:09 PM
The pipeline for municipal market enforcement cases is very full for 2016, said LeeAnn Gaunt, director of the SEC enforcement division's municipal securities and public pensions unit. "We're really operating on all cylinders."
John McNally, partner with Hawkins Delafield & Wood in Washington said he expects the SEC to have finished its settlements with both dealers and issuers under the MCDC initiative by the middle of the year. While the number of issuers likely exceeds the number of underwriters, the SEC will have a harder time bringing settlements against issuers because they do not have the same leverage under SEC Rule 15c2-12 on municipal disclosure as they do with underwriters.
The process of negotiating and approving settlements for "a couple hundred" issuers, and then any individuals charged later, is "a good bit of work even for the relatively large team that the commission seems to have dedicated to the MCDC program," said Paul Maco, partner at Bracewell & Giuliani.
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Elaine Greenberg, a partner with Orrick, Herrington and Sutcliffe, said enforcement actions stemming from the MCDC initiative could stretch far past 2016 if the SEC moves on to bring actions against individuals and those individuals choose to forego a settlement and instead litigate the SEC's charges.
Ernesto Lanza, shareholder in Greenberg Traurig's Washington office, predicts "a tail" from MCDC that could include actions other identified professionals, like lawyers and advisors, who participated in the reported deals. "One could imagine that if the SEC wanted to send a message saying 'professionals, you have obligations as well,' they can find a limited number of cases where professionals really dropped the ball and try to make a case to say watch out, you're a gatekeeper, you can't just be there with blinders on in a transaction," he said.
The SEC is more likely to put out a risk alert or some type of guidance than take enforcement actions after the SEC's Office of Compliance Inspections and Examinations finishes its first ever set of MA examinations, said Leo Karwejna, managing director and chief compliance officer at Public Financial Management.
Tom Dannenberg, president and chief executive officer of Hutchinson, Shockey, Erley & Co. and a BDA board member, said he expects to see an example case from the SEC to give guidance on when an MA working with loans on behalf of an issuer may be engaging in broker-dealer activity as a placement agent. "I think 2016 is the year that spells it out pretty specifically for everyone," he said.
