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SEC OMS Staff Issues Legal Bulletin Regarding the Application of Antifraud Provisions to Public Statements of Issuers of Municipal Securities


On February 7, 2020, the staff of the Office of Municipal Securities (the "Staff') of the Securities and Exchange Commission ("SEC") issued Staff Legal Bulletin No. 21 (the "Bulletin") which provides the views of the Staff concerning the application of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule l0b-5 promulgated thereunder (collectively, the "antifraud provisions") to any statement of a municipal issuer that is reasonably expected to reach investors and the trading markets. According to the Bulletin, the fact that information is not published for purposes of informing the securities markets does not alter the mandate that the municipal issuer not violate the antifraud provisions.

Antifraud Rules

The antifraud provisions apply to the purchase and sale of municipal securities in the secondary market and prohibit the making of any untrue statement of material fact or omitting 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. A required element of a violation of Section 10(b) of the Exchange Act and Rule 10b-5 is "scienter", i.e., the mental state of intent to deceive, manipulate or defraud. This requirement has been met in antifraud cases by showing recklessness on the part of the issuer. The Bulletin, citing case law, states that recklessness is defined as an "extreme departure from the standards of ordinary care, and which represents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it." The Bulletin indicates that a fact is material if there is a substantial likelihood that the information would have been viewed by the reasonable investor as having significantly altered the total mix of information available as determined under a facts and circumstances analysis. The availability of information regarding a municipal issuer is part of such analysis. Therefore, the extent to which the municipal issuer has made other statements may increase or decrease the risk that the public statements at issue may significantly alter the total mix of information. The SEC noted that there is a difference between information regarding a municipal issuer that is uneven and inefficient versus information regarding a municipal issuer that is regularly available to investors through the Electronic Municipal Market Access ("EMMA") system of the Municipal Securities Rulemaking Board or another investor website. 

Examples of Public Statements Expected to Reach Investors

Examples of information reasonably expected to reach investors include public announcements, press releases, social media posts, speeches, interviews with media representatives, discussions with groups whose members have a particular interest in the affairs of the issuer, and information or reports collected by state and local governmental bodies and routinely made publicly available, as well as continuing disclosure documents posted on EMMA. Statements made by "officials" include elected officials, appointed officials and employees of any municipal issuer. Websites of municipal issuers are discussed further in the Bulletin. The particular items of concern cited by the Staff with issuer websites include (i) ensuring that the information on the website is accurate and not misleading, (ii) having a separate section for information that is historical so that it is apparent to the reasonable person that the posted materials or statements speak as of a certain date or earlier period, (iii) the use of hyperlinks on the website, and (iv) providing summaries of financial information. The Bulletin recommends that municipal issuers follow the guidance given by the SEC to public companies on how to handle the dissemination of summary information on websites. 

Policies and Procedures

The Staff encourages municipal issuers to adopt policies and procedures to manage information dissemination, communication with investors and compliance with antifraud provisions. The policies at a minimum should include (i) designating a person responsible for compliance with such policies and procedures, (ii) establishing periodic training schedule for staff and officials responsible for developing, reviewing and disseminating disclosures, (iii) identifying documents which customarily contain current information about the financial and operational condition of the municipal issuer, (iv) establishing a process by which such documents are made available to investors, and (v) identifying the place or places at which the municipal issuers make such documents regularly available to the public, such as a central repository like EMMA. 


While the Bulletin reflects the views of the Staff and does not constitute a rule, regulation or statement of the SEC, it does offer important guidance regarding the application of the antifraud provisions to public statements made by municipal issuers and officials in the secondary market. The entire Bulletin can be found at the SEC's website: https:/ / . If you have questions or need assistance with your compliance efforts or policies, you can contact Michael P. Botelho at (860) 548-2637 or or Jennifer M. Egan at (860) 548-2628 or