In recent years, the SEC has intensified its focus on municipal advisors, given their crucial role in the municipal securities market. Since 2010, it has been mandatory for municipal advisors to register with the SEC before providing advice to municipal entities or persons regarding municipal financial products or the issuance of municipal securities. This heightened scrutiny aims to protect investors and maintain the integrity of the market by addressing potential risks and misconduct. In 2024 the SEC charged several firms for failing to register as a municipal advisor.1
In 2024, the SEC took significant enforcement actions against municipal advisors to ensure compliance with regulatory standards and protect investors. These actions highlight the SEC's commitment to maintaining integrity of the municipal securities market.
One notable case involved a municipal advisor misleading investors about a city's financial condition, underscoring the importance of transparency and accurate financial reporting in municipal securities. Another significant enforcement action was against a firm for policy failures regarding the receipt of material nonpublic information about bonds issued, emphasizing the need for robust internal controls to prevent the misuse of sensitive information.
Last year the SEC charged a firm for misleading the Pennsylvania Public School Employees’ Retirement System (PSERS) by misrepresenting the source of inaccurate performance data provided to the fund. The firm reported mistaken asset performance data for the second quarter of 2015, which was about 37 basis points higher than previous reports. This error led to an incorrect calculation of a nine-year return, causing PSERS to initially report that fund participants would not need to contribute more, only to later inform them otherwise. The firm falsely claimed that the discrepancy was due to an adjustment based on more recent data, when in fact it was based on faulty data entry.
The SEC also charged a broker-dealer for quoting and trading municipal securities at above-market, unfair and unreasonable prices, highlighting the focus on ensuring fair pricing practices in the municipal securities market. Additionally, the SEC charged multiple municipal advisors with recordkeeping violations. These firms and their personnel failed to maintain and preserve certain electronic communications, which is crucial for regulatory compliance and investor protection.
The SEC's Risk Alert for Municipal Advisors, published in December 2024, provides valuable insights into the examination process for municipal advisors.2 The Risk Alert describes the selection process for municipal advisors and the types of documents and information that may be requested during an examination. The Division employs a risk-based approach to select firms for examination, reflecting changes in market conditions and industry practices.
Examinations may focus on compliance with statutory fiduciary obligations, standards of conduct, professional qualifications, filings, recordkeeping, conflicts of interest, advertising and supervisory requirements. The Division also publishes annual priorities to highlight key risks, trends and requirements for the upcoming year. The Risk Alert also emphasizes the importance of municipal advisors adhering to their fiduciary duties and maintaining accurate records. It outlines the potential consequences of noncompliance, including enforcement actions and penalties. Additionally, the alert provides guidance on best practices for municipal advisors to ensure they meet regulatory expectations and protect the interests of their clients.
These enforcement actions combined with the Risk Alert demonstrate the SEC's proactive approach in addressing noncompliance and protecting investors in the municipal securities market. The SEC's efforts in 2024 have reinforced the importance of adherence to regulatory requirements and the consequences of failing to do so.
Sources
1 Recent Municipal Securities Enforcement Actions. (n.d.). U.S. Securities and Exchange Commission. Retrieved January 26, 2025, from https://www.sec.gov/about/divisions-offices/office-municipal-securities/recent-municipal-securities-enforcement-actions
2 Municipal Advisors: Staff Assessment of Risks, Scoping of Examinations, and Requesting of Documents. (2024, December 9). U.S. Securities and Exchange Commission. https://www.sec.gov/files/risk-alert-muni-advisors-120924.pdf
