SEC to Impose Penalties More Often in Muni Fraud Cases

The U.S. Securities and Exchange Commission plans to impose penalties more frequently in the $3.7 trillion municipal securities market.

“An enforcement model with no penalties was not sustainable,” Andrew Ceresney, the SEC’s director of enforcement, said during a panel discussion at the Securities Industry and Financial Markets Association’s conference in New York. “The most effective deterrent is individual liability, so we need to be focused on that.”

Ceresney’s comments come as the SEC has been stepping up enforcement efforts against state and local governments that defraud investors by making false or misleading statements in bond documents. Recent settlements have included penalties against individuals and municipal borrowers.

The former mayor of Allen Park, Michigan, agreed last week to pay $10,000 to settle an SEC claim that he oversaw fraudulent bond issues for a movie studio project that was supposed to revitalize the city. Last year, the SEC fined a public agency in Washington $20,000 for misleading investors about the feasibility of an ice-hockey arena, the first such fine against a municipal borrower.

The SEC has also extended an offer of leniency to underwriters and local governments that voluntarily report cases in which misleading disclosures were made to investors.

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