ORRICK, HERRINGTON & SUTCLIFFE LLP , DISCLOSURE COUNSEL TO THE
PUBLIC UTILITIES COMMISSION OF THE CITY AND COUNTY OF SAN FRANCISCO May 27, 2025
DISCLOSURE TRAINING
FOR COMMISSIONERS
Purpose of this training
•Provide SFPUC Commissioners with overview of responsibilities under federal securities law.
•Satisfy requirement for formal disclosure training under SFPUC's Debt Management Policies & Procedures.
2 Anti-fraud statutes and rules
•Municipal securities are exempt from the registration requirements of the Securities Act of 1933 but are not exempt from the anti-fraud rules.
•Securities Act of 1933
–Section 17(a)
•Securities Exchange Act of 1934
–Section 10(b)
–Rule 10b-5
–Rule 15c2-12
•No material misstatements or omissions of material facts. •Anti-fraud rules apply to (i) primary offerings, (ii) tender offers, (iii) annual disclosure report, and (iv) any other "speaking to the market."
3 Preliminary Official Statement / Official Statement
•Prepared to provide a reasonable investor with information necessary to make an informed investment decision.
•Describes bond terms, sources of repayment for bonds, information about SFPUC, its operations and financial condition.
•Prepared by SFPUC staff, in consultation with City Attorney's office and professional advisors, and submitted to Commission for review and approval The Preliminary Official Statement and final Official Statement are the SFPUC's disclosure documents. It is essential that they do not contain any material misstatements or omissions.
4 Materiality
•A fact is “material” if it is something a reasonable investor would want to know in making an investment decision.
•There is no hard test for “materiality” – “materiality” depends upon the context. •Materiality determinations end up getting made with the benefit of 20/20 hindsight (i.e., after something has gone wrong).
5 Commissioners' responsibilities
•Create and sustain a culture of transparency.
•Ensure staff has established and followed adequate internal review procedures.
•Ensure staff has engaged professionals knowledgeable about federal securities laws to help prepare disclosure documents.
•Review draft disclosure documents, making sure big picture challenges and risks are fairly addressed.
•Raise concerns and share important information of which Commission members have personal knowledge.
6 There is a genuine upside
A reputation for complete, accurate and forthright disclosure can be a help in good times and a lifesaver in tough times. 7 Questions?
•For bond and disclosure questions:
–Nikolai J. Sklaroff
Capital Finance Director
[email protected]
•For legal questions:
–Sheryl L. Bregman
Utilities General Counsel
[email protected]
–Katherine Thursby Ortega
Deputy City Attorney
[email protected]
8 APPENDIX
Securities Act of 1933 – Section 17(a)
•Section 17(a) provides:
–“It shall be unlawful for any person in the offer or sale of any securities… ○ (1) to employ any device, scheme, or artifice to defraud, or ○ (2) to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or ○ (3) to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser." A-1
Securities Exchange Act of 1934 – Section 10(b)
•Section 10(b) of the 1934 Act provides:
–“It shall be unlawful for any person…[t]o use or employ, in connection with the purchase or sale of any security…any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
A-2
Securities Exchange Act of 1934 – SEC Rule 10b-5
•Rule 10b-5 provides:
–“It shall be unlawful for any person…
○ (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, or
○ (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.” A-3
Securities Exchange Act of 1934 – SEC Rule 15c2-12
•Prohibits underwriter from purchasing securities unless:
–the underwriter obtains an official statement that an issuer “deems final” as of its date.
–an issuer or an “obligated person” has undertaken a continuing disclosure obligation to provide annual financial information or operating data and audited financial statements and notices of certain listed events. •Certain exemptions exist for privately placed, short-term, or demand securities or small issues.
A-4