Disclosure Responsibilities Under
the Federal Securities Laws
Presentation to
City of Barstow City Council Members
Presented by:
Vanessa Legbandt
Stradling Yocca Carlson & Rauth LLP Stradling
Attorneys at Law
Why Is Disclosure Necessary?
The City issues securities in the public capital
markets
Investors in municipal securities have rights
under federal securities laws
All "material" information must be disclosed
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Federal Securities Acts COMMISSION.
AXXI
• Securities Act of 1933
• Securities Exchange Act of 1934
• Both 1933 Act and 1934 Act contain antifraud
provisions, which apply to municipal securities
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Federal Securities Acts
VAXXIN
• Rule 10b-5: "It shall be unlawful for any person in connection with the purchase or sale of any security...
a) To employ any device, scheme or artifice to defraud, b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading ....
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The "Materiality" Standard
• "[w]hether or not there is a substantial likelihood
that a reasonable investor or prospective investor
would consider the information important in
deciding whether or not to invest."
• Materiality is determined in context of all the facts and circumstances, but usually in hindsight
• Guidance comes primarily from court decisions and
SEC enforcement cases
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When Do Disclosure Rules Apply?
• New offerings
• Ongoing Continuing Disclosure
- Annual Report under Rule 15c2-12 (Audited Financial Statements and Specified Financial and Operating Data)
- Rule 15c2-12 Material Event Notices
• Any other circumstance where an Issuer is
"speaking to the market"
- Speeches and presentations by senior staff and by elected officials - Social Media
- Website
- Investor Communications
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Official Statement
• Official Statement is offering document to investors
(equivalent to a prospectus)
• Must contain all material information for the
particular bond sale
• Official Statement is the City's document
• Underwriters, municipal advisers and lawyers help
develop the Official Statement but the City is
ultimately responsible for content
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Disclosure Process
• Disclosure Counsel helps pull information together and produces a draft Preliminary Official Statement ("POS") • Seek input from key officials; empower staff at all levels • Draft POS reviewed by City staff and Financing Team
• City Council review and approval - is there anything staff may not be fully aware of?
• Important to maintain Attorney-Client privilege for
sensitive issues
• Political sensitivity and confidentiality considerations are not exceptions to disclosure
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Consequences of Bad Disclosure
SEC Active Whistleblower Program
SEC Investigation - fees for lawyers and consultants
Personal fines; Industry Bar
Implement new procedures and oversight to settle SEC actions Reduced market access
Rating Downgrades (triggers increased borrowing cost)
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Questions?
Contact:
Vanessa S. Legbandt, Esq.
Stradling Yocca Carlson & Rauth
(949) 725-4073
[email protected]
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