SEC Guidance: Public Statements of Municipal Issuers Subject to Antifraud Provisions
The SEC’s Office of Municipal Securities recently released guidance providing that statements made by municipal issuers, such as public announcements, press releases, interviews with media representatives, and public reports, may be subject to the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (the Exchange Act) and Rule 10(b)-5 thereunder. On Feb. 7, 2020, the Office of Municipal Securities released Staff Legal Bulletin No. 21 (the Bulletin), making it clear that the antifraud provisions of the federal securities laws apply to “any statement of a municipal issuer that is reasonably expected to reach investors and the trading markets.”
While municipal issuers are generally aware of their obligations regarding the accuracy of statements made in offering documents for publicly sold securities and in continuing disclosure filings in accordance with Rule 15c2-12 of the Securities and Exchange Commission (the SEC), the Bulletin makes it clear that municipal issuers must consider the totality of public information and the materiality of this information in terms of the impact on a reasonable investor. Section 10(b) of the Exchange Act and Rule 10(b)-5 thereunder generally prohibit the use or employment of manipulative or deceptive devices, as well as the making of any untrue statement of material fact or omission of a material fact, all in connection with the purchase or sale of municipal securities. A fact is material if there is a substantial likelihood that it would have been viewed by the reasonable investor as having significantly altered the “total mix” of available information.
The Bulletin acknowledges that municipal issuers disclose current information about themselves in a variety of ways, including continuing disclosure documents, public announcements, press releases, interviews, and discussions with advocacy groups. The Bulletin notes, however, that even if these statements aren’t published for purposes of informing securities markets, that fact “does not alter the mandate that they not violate the antifraud provisions.” As a result, municipal issuers should evaluate, on a case-by-case basis, whether a public statement of any type would significantly alter the “total mix” of available information concerning the municipal issuer. For example, if a municipal issuer posts minutes of meetings on its website that reveal a major new development and investors are able to access this information (despite not being intended to reach investors), that information may be subject to the same standards under the antifraud provisions as information that is explicitly intended to reach investors, such as continuing disclosure filings on EMMA.
Examples of additional public statements that could be subject to the antifraud provisions include: (1) other information available on issuer websites, such as historical information, hyperlinks and financial and operating information presented in summary or overview formats; (2) public reports delivered to other governmental bodies, such as CAFRs, budgets, mid-year financial reports and other reports made part of a public record and available to the public; and (3) statements of municipal issuer officials, especially fiscal officers, such as speeches, public announcements, interviews, as well as statements made through social media.
Finally, the Bulletin stresses the importance of implementing adequate policies and procedures concerning public statements in light of the antifraud provisions. Recommendations for such policies and procedures include, among other things, the designation of a responsible individual for compliance with the policies and procedures; the establishment of periodic training requirements for issuer staff and officials responsible for public statements; the identification of documents, reports, etc. that contain financial, operating or other material information and the development of a process for disseminating such information; and the identification of a place at which the issuer makes such information regularly available to the public, such as an investor relations website.