SEC Accuses Harrisburg of Misleading Municipal Bond Buyers
By Joshua Gallu – May 6, 2013 2:32 PM ET
The U.S. Securities and Exchange Commission accused the city of Harrisburg, Pennsylvania, of making misleading statements to municipal bond investors as its financial condition deteriorated in 2009.
The city, Pennsylvania’s capital, agreed to implement remedial measures in settling the claims, which related to statements in its budget report, annual and mid-year financial statements, and a State of the City address, the SEC said today in a statement. The city wasn’t assessed a financial penalty.
Harrisburg failed to provide certain financial information and audited statements from 2009 to 2011, leaving investors to rely on other public statements for information about the city’s finances. The case marks the first time the agency has sanctioned a municipality for misleading statements made outside of its securities disclosure documents, the SEC said.
“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” George Canellos, co-chief of SEC enforcement, said in a statement.
Harrisburg Mayor Linda Thompson said her administration cooperated fully with the SEC’s investigation and has “completely revamped” its policies for financial disclosures.
“These new policies and procedures are designed to ensure that accurate and complete financial information regarding the City’s finances is made available to investors and the public in a timely manner,” Thompson said in an e-mailed statement.
The SEC also issued a related report of investigation to address the liability of public officials who make statements about a municipal issuer. While no Harrisburg officials were sanctioned, the agency said that public officials who make misleading written or oral statements could be liable for under anti-fraud laws.
The city of about 50,000 defaulted on debt it guaranteed and lost a bid for bankruptcy. Harrisburg’s fiscal woes stem from an overhaul of a trash-to-energy incinerator that didn’t generate enough revenue to pay off its debt, which is more than five times the city’s general-fund budget. Dauphin County, of which Harrisburg is the seat, and bond insurer Assured Guaranty Municipal Corp., a unit of Hamilton, Bermuda-based Assured Guaranty Ltd. (AGO), have covered the payments Harrisburg skipped since 2009.
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