Types of SEC Whistleblower Cases:  Municipal Securities Frauds

Many SEC whistleblower cases are focused on the enforcement of securities laws pertaining to public companies, securities firms, brokers, investment advisers, and ratings agencies.  While the municipal securities fraudsSEC does regulate and bring cases against all of these entities, the Commission’s authority is not limited to just them.  The SEC’s jurisdiction covers all entities and individuals who participate, or seek to participate, in the sale, distribution or promotion of equity and/or debt securities through the public markets.  This includes municipal securities, the most well-known of which are municipal “muni” bonds, sold by State and local governments and municipal authorities.  The SEC has brought cases against municipalities for Municipal Securities Frauds.

What Is A Municipal Security?

A municipal security is typically a bond (debt security) that is sold (issued) to the general public through a public offering by a local government, governmental agency, or municipal authority.  Some examples of municipal agencies and authorities include:  school districts, public utilities, public airports and shipping ports, building authorities, and transportation authorities.

Municipalities sell these securities to raise funds to finance the operations of the local government or authority, as well as to fund public projects in their jurisdictions such as parks, schools, libraries, bridges, roads, and airports.

Types Of Municipal Securities Frauds

The SEC does not determine what types of projects municipalities can issue bonds to fund.  Nor does it bring SEC whistleblower cases against municipalities because a bond fails to provide the proposed return to investors.

However, the SEC does require municipalities to follow the same laws and regulations in regard to selling a municipal security as any other issuer.  For example, the Commission can bring SEC whistleblower cases for Municipal Securities Frauds against issuers for failing to provide full and proper disclosure of material information that the SEC deems necessary to enable reasonable investors to make informed decisions about whether to purchase or sell their securities.

In addition to municipalities and municipal authorities/agencies, the SEC can bring cases for Municipal Securities Frauds against independent agents and third-party advisors involved with their securities offerings.  Such agents/advisors might include bond counsel, underwriters, or municipal attorneys.  Additionally, municipal officials who are or become aware of material information or material changes in the information provided to purchasers, and who fail to disclose that information, can become the focal point of SEC whistleblower cases.

There is no minimum number of violations that must occur for the Commission to initiate cases for Municipal Securities Frauds.  An SEC whistleblower case could be brought for as little as the failure to report a single budgetary change.

Additional Information

For more information about Municipal Securities Frauds, click on the links below: