Presented by:
Lawrence Chan
Stradling Yocca Carlson & Rauth LLP
Presentation to the City Council
of the City of Chula Vista
Disclosure Responsibilities Under
the Federal Securities Laws
Why Is Disclosure Necessary?
• The City from time-to-time issues securities in
the public capital markets
• Investors in municipal securities have
protections under federal securities laws
• All “material” information must be disclosed
2 City Disclosure
• Preliminary Official Statement/Official
Statement (POS/OS) is the offering document
to investors - equivalent to corporate
prospectus
• Must contain all material information for the
particular bond sale
• POS/OS is the City’s document
• Municipal advisor, underwriters and lawyers
can help develop the POS/OS but the City is
ultimately responsible for the accuracy and
completeness of content
3 City Disclosure - Continued
• Broad description of City’s financial and economic
condition
• Description of budget process, major revenue
sources and expenditure programs
• Information on recent and current budgets –
“structural” deficit?
• Information on debt – types and amounts
• Litigation
• Risks to finances/operations – e.g., cyber security,
general economy and climate change
4 Antifraud Provisions
“Rule 10b-5”
• “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 . . . .”
5 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.”
• Provide all the facts and let the investor
decide
6 When Do Disclosure Rules Apply?
• New offerings
• Annual Continuing Disclosure Reports
• Any other circumstance where an Issuer is
“speaking to the market”
• Whether a communication is “speaking to the
market” will depend on the official making the
statement and the audience (e.g., public
speeches, press releases/interviews, social
media)
7 Summary
• Adopt disclosure policies and promote adherence
• Familiarize yourself with the POS/OS
• If you are aware of any particular areas of concern,
inquire how they are addressed
• During the marketing and sale of the bonds, make
sure any public statements are consistent with the
POS/OS
• Create a culture of transparent disclosure – it
comes from the top
8 QUESTIONS?
9