The SEC yesterday charged the City of Harrisburg, Pennsylvania with securities fraud based on misleading public statements concerning the city’s financial condition in the city’s budget report, annual and mid-year financial statements, and a State of the City address. This enforcement action marked the first time the SEC has charged a municipality for misleading statements made outside of its securities disclosure documents. Harrisburg agreed to settle the charges.
Separately, the SEC issued an investigative report addressing the obligations of public officials relating to secondary market statements. The SEC cautioned public officials to be mindful that their public statements, whether written or oral, may affect the total mix of information available to investors and to understand that these public statements, if materially misleading, can lead to liability under the federal securities laws. Given this potential for liability, the SEC advised public officials to consider taking steps to reduce the risk of misleading investors. At a minimum, public officials should consider:
- adopting policies and procedures that are reasonably designed to result in accurate, timely, and complete public disclosures;
- identifying those persons involved in the disclosure process;
- evaluating other public disclosures including financial information made by the municipal issuer; and
- assuring that responsible individuals receive adequate training about their obligations under the federal securities laws.