Up Next: Securities Suits Against Municipalities?

Up Next: Securities Suits Against Municipalities? - 9/28/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Up Next: Securities Suits Against Municipalities?
Kevin LaCroix

The D & O Diary. September 28, 2009
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EXCERPT: Among the many firms and entitles struggling with the effect of the global economic downturn are a host of municipalities, many of whom face diminished tax revenues, unfunded pension and health care liabilities and aging infrastructure. A number of these municipalities also labor under a burden of debt undertaken when times were flush. Financial woes have already forced credit rating downgrades on some issuers’ bonds and others are flirting with default. Among other things, these kinds of problems can lead to securities litigation, and recent developments in one securities suit involving a municipality raise the question whether there could be more suits to come. Municipalities traditionally have various levels of exemptions from securities registration and reporting requirements, although these exemptions have evolved over time. But municipalities have always been subject to the antifraud provisions of the securities laws. […] Perhaps the most high-profile SEC enforcement action in recent months involving a municipality is the securities fraud complaint filed against five former San Diego city officials. As described in the SEC’s April 7, 2008 press release, the SEC alleged that the five officials, who allegedly played key roles in connection with inadequate municipal securities disclosures in 2002 and 2003, had "failed to disclose to the investing public buying the city’s municipal bonds that there were funding problems with its pension and health care obligations and these liabilities had placed the city in serious financial jeopardy." As reflected in the SEC’s San Diego complaint, the five officials were the former City Manager, the former City Treasurer, the former City Auditor and Controller, the former Deputy City Manager, and the former Assistant Auditor and Controller. The complaint sought to enjoin the officials from further violations and to require the officials to pay a civil penalty.

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