i.3.2.1 Compliance with Municipal Securities Laws – Disclosure

Public agencies subject to the anti fraud provisions must protect against making untrue statements of material facts or omissions of material facts in both primary offering materials and when providing additional information after the debt has been issued. SEC Rule 10b-5 applies to issuers when they are “speaking to the market,” which includes publication of offering documents (Official Statements [OSs]), annual reports and material events notices required under SEC Rule 15c2-12 and any voluntary disclosures, including financial information posted to the agency’s website or to an investor relations website. The SEC, however, provides no definition of “materiality” in any rule or statute. As a result, issuers must determine whether there is a “substantial likelihood that a reasonable investor or prospective investor would consider the information important in deciding whether or not to invest.”14

SEC Rule 15c2-12 applies directly to underwriters who act as “market makers” to purchase the municipal securities issued by the agency and resell them to other investors. However, through an agreement between the underwriter and the issuers, SEC Rule 15c2-12 indirectly imposes requirements on issuers. Specifically, SEC Rule 15c2-12 requires that underwriters of municipal securities, before bidding, purchasing, or selling a municipal security in the primary market, must obtain and review the issuer’s preliminary and final OSs and reasonably determine that the issuer has committed to provide continuing disclosures to investors, including annual financial statements and notices of specified material events.15