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DODD-FRANK ACT AND ITS IMPACT ON THE MUNICIPAL ISSUERS, UNDERWRITERS, AND ADVISORS.

I. INTRODUCTION

The municipal bond attorney practice in South Dakota can be traced back to the Boyce-Greeley Building in Sioux Falls. In 1932, George J. Danforth and Holton Davenport leased the southwest corner of the fourth floor of the Boyce-Greeley Building. (1) Shortly thereafter, George J. Danforth, Jr., joined the firm and later became South Dakota's first bond attorney. Since the late 1940s, Danforth & Danforth acted as bond counsel for most South Dakota municipalities. In 1987, Mark Meierhenry and I moved into the fourth floor of the Boyce-Greeley building where we shared office space with Danforth, Danforth & Johnson. (2) Having more time than billable hours, we had great discussions with Mr. Danforth about the history of the practice of law in Sioux Falls and the history of South Dakota's municipal bond practice. (3)

Gefke & Company was the only South Dakota investment banking firm in the state from the 1940s through the 1960s. (4) Fred Gefke, president of Gefke & Company, financed his underwriting of municipal bonds with The First National Bank in Sioux Falls. He obtained a loan, travelled the state, and underwrote city and school bonds. He returned to Sioux Falls and sold the bonds.

Mr. Danforth, as the only South Dakota bond attorney, often would travel with Fred Gefke doing municipal bond business. Traveling across South Dakota in the 1940s was a time-consuming process. Many roads were not paved, and in wet seasons, the traveler would have to back-track to avoid various unsurpassable water holes on the road. (5) There were times that the two would hunt while traveling. One would sit on the hood and shoot pheasants, and the other would drive.

During one of these return trips from western South Dakota, Mr. Danforth and Fred Gefke stopped in Kadoka for gas. The gas station attendant in coveralls came out to fill their car with gas. He asked what the two fellows did. Fred explained that he purchased and sold municipal bonds, and that Danforth was a bond attorney. The man said that it was a fortuitous meeting since he was the mayor, explaining that he had Kadoka bonds locked in his desk drawer for sale. (6) Gefke bought the bonds, threw them in the trunk, and continued on to Sioux Falls. The days of pheasant hunting while bond buying, however, are gone. Today, the bond market is larger, more complex, and highly regulated.

II. BACKGROUND

A. THE MUNICIPAL BONDS

The United States' municipal securities market had "over one million different municipal bonds outstanding" in 2011. (7) In South Dakota, there are 66 counties, (8) 310 cities and towns, (9) 149 school districts, (10) and many other governmental subdivisions. (11) These government issuers borrow money to finance capital projects and improvements when they cannot or should not be financed exclusively from current operating budgets. (12) The borrowings are evidenced by bonds, certificates, notes, and finance leases.

The process for financing projects typically includes these events: (1) Issuer defines the project; (2) Issuer retains professionals (bond counsel, (13) municipal advisor (14) and/or underwriter (15)); (3) Issuer determines the source of payment (general obligation, revenue, tax, special assessment); (16) (4) Issuer determines type of sale (public (17) or negotiated); (5) Issuer passes resolution or ordinance calling election; (6) Issuer holds election where required; (18) (7) Issuer passes resolution setting forth terms and conditions of the bonds; (8) In public offerings, distribution of the official statement; (19) (9) Bonds (20) are sold; and (10) Bonds are issued. (21)

Parties involved in the bonding process can be divided into two camps: (1) issuer's side, and (2) underwriter's side. The following parties could appear in a negotiated sale:
Issuer's Side             Underwriter's Side
Municipal Issuer (22)     Underwriter(s) (23)
Bond Counsel (24)         Trustee (25)
Municipal Advisor (26)    Credit Enhancer (27)
Issuer's General Counsel  Underwriter Counsel (28)
                          Disclosure Counsel (29)
                          Selling Group Counsel (30)
                          Credit Enhancer Counsel (31)
                          Feasibility Consultant (32)
                          Auditor (33)
                          Trustee's Counsel (34)


The key difference is that on the issuer's side, the bond counsel, municipal advisor, and general counsel statutorily owe the issuer a fiduciary duty. (35)

B. HISTORY OF MUNICIPAL BOND REGULATION

The business of issuing municipal securities, in large part, is not regulated. Municipal securities are not subject to the statutory or regulatory requirements of the Securities Act of 1933 ("Securities Act") or the Securities Exchange Act of 1934 ("Exchange Act"). (36) Further, Con gress enacted the Tower Amendment to the Securities Act in 1975. (37) This legislation created the Municipal Securities Rulemaking Board ("MSRB"). (38) The Tower Amendment strictly prohibited the U.S. Securities and Exchange Commission ("SEC") and MSRB from regulating the issuance or sale of municipal securities. (39) The SEC and MSRB are not restricted, however, in regulating post issuance matters. (40) Municipal securities transactions are subject to the antifraud provisions of Section 77q of the Securities Act, (41) Section 78j-2 of the Securities Exchange Act of 1934, (42) and Security and Exchange Commission's Rule 10b-5. (43) These antifraud provisions prohibit any person by:
the use of any means or instrumentality of interstate commerce, or of
the mails or of any facility of any national securities exchange, (a)
[t]o employ any device, scheme, or artifice to defraud, (b) [t]o 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, or (c)
[t]o engage in any act, practice, or course of business which operate
as a fraud or deceit upon any person, in connection with the purchase
or sale of any security. (44)


The SEC's investor protection efforts in the municipal securities market have been accomplished through back-door regulation. (45) Since the SEC has the power to broker-dealers and municipal securities dealers, they have caused back-door regulation through Exchange Act Rule 240.15c2-12, SEC interpretations, enforcement of the antifraud provisions of the federal securities laws, and Commission oversight of the MSRB. (46)

C. DODD-FRANK ACT

On July 21, 2010, President Obama signed the Dodd-Frank Act into law. (47) It was an act "[t]o promote the financial stability of the United States by improving accountability and transparency in the financial system, to end 'too big to fail,' to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial service practices, and for other purposes." (48) Section 975 of the Dodd-Frank Act made several changes to the oversight of the municipal securities market. (49) It also amended section 15B of the Securities Exchange Act to require municipal advisors to register with the SEC and provide for municipal advisor regulation by the MSRB. (50)

III. ANALYSIS

A. IMPACT ON MUNICIPAL ISSUERS

The Dodd-Frank Act "expand[ed] the MSRB's mission to include the protection of municipal entities and obligated persons." (51) The Dodd-Frank Act also required the Governmental Accountability Office ("GAO") to review several aspects of the municipal securities market, including the mechanisms for trading, price discovery, and price transparency. (52) The final GAO report "examin[cd] (1) municipal security trading in the secondary market and the factors that affect the prices investors receive, and (2) the Securities and Exchange Commission's (SEC) and self-regulatory organizations' (SRO) enforcement of rules on fair pricing and timely reporting." (53) As part of this report, GAO noted that municipal issuers' disclosures were sometimes outdated and incomplete. (54)

The SEC followed GAO with a July 31, 2012, Report on the Municipal Securities Market. (55) The report included recommendations for potential changes to laws, regulations, and business practices. (56) The report did not recommend repeal of the Tower Amendment but provided several other legislative and regulatory recommendations. (57)

Based on the SEC's concern that many issuers had not been complying with their obligation to file continuing disclosure documents and that federal securities law violations involving false statements concerning such compliance could be widespread, in March of 2014, the SEC initiated the Municipalities Continuing Disclosure Cooperation Initiative (the "MCDC Initiative"). (58) The MCDC Initiative suggested that issuers who may have made materially inaccurate statements in a final official statement regarding their prior compliance with their continuing obligations as described in Rule 15c2-12 should consider self-reporting to the SEC to take advantage of the MCDC Initiative. (59) In addition, underwriters of the offerings were given the option to self-report. (60)

The MCDC Initiative provided issuers and underwriters the opportunity to self-report instances of material misstatements in bond offering documents regarding the issuer's prior compliance with its continuing disclosure obligations. (61) The Initiative "was intended to address potentially widespread federal securities laws violations by municipal issuers and underwriters of municipal securities in connection with certain representations about continuing disclosures in bond offering documents." (62) The deadline for self-reporting was December 1, 2014. (63) Thousands of municipal issuers self-reported. (64)

On August 24, 2016, the SEC announced enforcement actions against seventy-one municipal issuers for selling municipal bonds with offering documents that contained materially false statements or omissions about compliance with continuing disclosure obligations. (65) South Dakota had one of the issuers which received a Cease-and-Desist Order. (66)

The result of the MCDC Initiative caused a majority of South Dakota issuers to retain dissemination agents to assist in the post issuance compliance so that they, on a timely basis, comply with their post-issuance disclosure obligations. (67) After passage of the Dodd-Frank Act, disclosure has improved. (68)

B. IMPACT ON MUNICIPAL UNDERWRITERS

On February 9, 2011, the MSRB submitted proposed amendments to the SEC. Its release stated the following:
The proposed rule change resulted from a concern that a dealer
financial advisor's ability to underwrite the same issue of municipal
securities, on which it acted as financial advisor, presented a conflict
that is too significant for the existing disclosure and consent
provisions of Rule G-23 to cure. Even in the case of a competitive
underwriting, the perception on the part of issuers and investors that
such a conflict might exist was sufficient to cause concern that
permitting such role switching was not consistent with "a free and
open market in municipal securities," which the Board is mandated to
perfect.


The imposition by Dodd-Frank of a fiduciary duty upon municipal advisors, which includes financial advisors, made the existence of such a conflict a greater concern. (69)

The MSRB also noted that the proposed rule change would help protect municipal entities. (70) In 2012, the MSRB issued new guidance for financial advisors and underwriters, including broker dealers under Rules G-17 and G-23, that underwriters and financial advisors may no longer serve in both capacities in the same transaction. (71)

Underwriters are now required under MSRB Rule G-17 to give a writing to the issuer that states that they are acting in their own interest. An example of the requirement is as follows:
The primary role of an underwriter is to purchase, or arrange for the
placement of, securities in an arm's-length commercial transaction
between the issuer and the underwriter and that the underwriter has
financial and other interests that differ from those of the issuer.
It is the intent of Company ('The Firm' or 'Company') to serve as
underwriter or placement agent on the prospective transaction, not as
municipal advisor. As an underwriter, Company's primary role is to
purchase or place securities or notes for distribution in an
arm's-length transaction. Company is acting in its own interests and
does not owe you a fiduciary duty with respect to the information
contained herein. Pursuant to the federal securities laws, during the
course of this transaction Company also owes certain duties to the
capital markets and to the investing public. (72)


C. IMPACT ON MUNICIPAL ADVISORS

Until the passage of the Dodd-Frank Act, municipal advisors were largely unregulated. (73) Municipal advisors were generally not required to register with the SEC or any other federal, state, or self-regulatory entity with respect to their municipal advisory activities. (74) Section 975 of the Dodd-Frank Act creates a new class of regulated persons, "municipal advisors," and requires these advisors to register with the SEC. (75)

A "municipal advisor" is a person, who is not a municipal entity or an employee of a municipal entity, that provides advice to or on behalf of a municipal issuer with respect to municipal financial products or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or undertakes a solicitation of a municipal entity. (76) Municipal advisors "include financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and swap advisors." (77) As noted in the definition section, however, municipal advisors do not include individuals such as:
a broker, dealer, or municipal securities dealer serving as an
underwriter, any investment adviser registered under the Investment
Advisers Act of 1940, or persons associated with such investment
advisers who are providing investment advice, any commodity trading
advisor registered under the Commodity Exchange Act or persons
associated with a commodity trading advisor who are providing advice
related to swaps, attorneys offering legal advice or providing
services that are of a traditional legal nature, or engineers providing
engineering advice. (78)


IV. CONCLUSION

Gone are the days when one could drive the back roads of South Dakota, hunt pheasants off the hood of a car, and buy bearer bonds. Dodd Frank clearly created additional regulatory burdens for municipal issuers, underwriters, and municipal advisors. Despite these burdens, the world of bearer bonds is clearly better due to the Act's regulatory benefits of better disclosure and enhanced investor protections.

V. APPENDIX

A. MSRB RULE A-12

A municipal advisory firm is required to register with the SEC and with the MSRB. Annually, the municipal advisory firm is required to update contact information and identify the master account administrator, billing contact, compliance contact, and primary data quality contact. (79)

B. MSRB RULE G-3

MSRB Rule G-3 sets forth the qualification requirements of a municipal advisor representative. The MSRB requires all municipal advisor representatives to take and pass the Municipal Advisor Representative Qualification Examination (Series 50) to demonstrate understanding of the regulations and business of engaging in municipal advisory activities. (80)

C. MSRB Rule G-44

MSRB Rule G-44 establishes the supervisory and compliance obligations of municipal advisors engaging in the municipal advisory business. Municipal advisors are required to establish a supervisory system and compliance program. The compliance system and policy require one or more principals to carry out the supervision. The policies procedures and policies must be in writing. All general business records are to be maintained for 6 years. The policies and procedures are reviewed annually to determine their sufficiency. (81)

D. MSRB RULE G-37

MSRB Rule G-37 is extended to include municipal advisors. The purpose of MSRB Rule G-37 is to curb the giving of political contributions to state and local officials in exchange for the award of municipal advisory business and provide greater transparency regarding the municipal advisors' political contributions. Municipal advisors are limited in their political contributions to $250 per election to a person who the advisor could vote for. If more than $250 is given, the municipal advisor firm cannot represent the municipal issuer for 2 years. (82)

E. MSRB RULE G-20

Municipal advisors become subject to Rule G-20, which protects against improprieties and conflicts of interest that may arise when regulated entities or their associated persons give gifts or gratuities in relation to the municipal securities or municipal advisory activities of the recipients' employers. The municipal advisor cannot provide a thing of value or service of value, including gratuities, in excess of $100 per year. The rule does not apply to:

1. occasional gifts of meals or tickets to theatrical, sporting, and other entertainments that are hosted by the municipal advisory firm or its financial advisors, and the sponsoring by the municipal advisory firm of legitimate business functions that are recognized by the Internal Revenue Service as deductible business expenses; provided that such gifts shall not be so frequent or so extensive as to raise any question of propriety;

2. gifts that are solely decorative items commemorating a business transaction, such as a customary plaque or desk ornament;

3. gifts of de minimis value (e.g., pens, notepads or modest desk ornaments) or promotional items of nominal value displaying the regulated entity's corporate or other business logo where the value of the item is substantially below the $100 limit;

4. gifts that are reasonable and customary for the circumstances;

5. gifts that are personal in nature given upon infrequent life events (e.g., a wedding gift or a congratulatory gift for the birth of a child). (83)

TODD MElERHENRY ([dagger])

Copyright [c] 2019. All rights reserved by Todd Meierhenry and the South Dakota Law Review.

([dagger]) Partner, Meierhenry Sargent LLP; J.D., University of South Dakota School of Law, 1987; B.A. English, Computer Science & Mathematics, University of South Dakota, 1984.

(1.) Holton Davenport left George J. Danforth and had a short stint at the Argus Leader, a business which his wife's parents owned. In 1993, Holton Davenport and Ellsworth Evans formed the Davenport, Evans, Hurwitz and Smith Law firm in Sioux Falls, with attorneys continuing to practice today.

(2.) Mark Meierhenry returned to private practice after serving as South Dakota Attorney General from 1979 through 1986. MEIERHENRY SARGENT LLP, ATTORNEY PROFILE, MARK MEIERHENRY (2018), http://www.meierhenrylaw.com/mark-meierhenry/.

(3.) George John Danforth, Jr., went by John in the office. People who dealt with John universally referred to him as Mr. Danforth. This traditional form of address indicated the era in which he practiced as well as the respect he was given as a lawyer.

(4.) See Financing Municipal Facilities: Hearings before the Subcomm. on Econ. Progress of the Joint Econ. Comm., 90th Cong. 223 (1968) (listing Gefke & Co. as the only South Dakota firm in the municipal bond business as listed in the 1966 mid-year edition of the Bond Buyer Directory).

(5.) Mr. Danforth said that, in the late 1930s, he would schedule a day to get from Sioux Falls to Vermillion.

(6.) The Kadoka bonds were bearer bonds. A bearer bond is "[a] bond that is presumed to be owned by the person who holds it. Since 1983, tax-exempt and other federally tax-advantaged bonds may not be issued in bearer form, with the exception of obligations maturing in one year or less or obligations of a type not generally offered to the public." Bearer Bond, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/BEARER-BOND.aspx.

(7.) U.S. SEC. & EXCH. COMM'N, REPORT ON THE MUNICIPAL SECURITIES MARKET (July 31, 2012), https://www.sec.gov/news/studies/2012/munireport073112.pdf [hereinafter REPORT ON THE MUNICIPAL SECURITIES MARKET].

(8.) SOUTH DAKOTA ASS'N OF CTY. OFFICIALS, SD COUNTIES (2018), http://www.sdcounties.org/about-2/.

(9.) See SOUTH DAKOTA MUN. LEAGUE, OVERVIEW OF MUNICIPAL GOVERNMENT IN SD (2018), htrp://www.sdmunicipalleague.org/index.asp?Type=B_PR&SEC=%7B33E9C767-2065-4201-8F6B-DBDA8625 A402%7D&DE=%7B8ED 171C6-7486-4770-B412-C99E60303C64%7D

(stating there are 310 incorporated municipalities in South Dakota).

(10.) See SOUTH DAKOTA DEP'T OF EDUC, SCHOOL DISTRICT MAPS (2018),

http://doe.sd.gov/ofm/districts.aspx (outlining the number of school district maps in South Dakota).

(11.) Governmental subdivisions would include townships, sanitary districts, water districts, water user districts, county improvement districts, fire districts, ambulance districts, road districts, and drainage districts.

(12.) Multi-Year Capital Planning, GOV'T FIN. OFFICERS ASS'N (Feb. 2006), http://www.gfoa.org/multi-year-capital-planning; Master Plans in Capital Improvement Planning, GOV'T FIN. OFFICERS ASS'N (Feb. 2008), http://www.gfoa.org/mastcr-plans-and-capital-improvement-planning.

(13.) Bond counsel is:
[a]n attorney or law firm retained, typically by the issuer, to give
the traditional bond counsel opinion. Such opinion customarily opines
that the bonds have been validly issued and, if tax exemption is
intended, that the bonds are tax-exempt bonds. The opinion also may
address related matters, such as state or local tax exemption and the
enforceability of certain security provisions. Typically, bond counsel
may prepare, or review and advise the issuer regarding, authorization
resolutions, bond contracts, official statements, validation
proceedings and litigation.


Bond Counsel, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/BOND-COLJNSEL.aspx.

(14.) A municipal advisor is:
[a] person or entity (with certain exceptions) that (a) provides
advice to or on behalf of a municipal entity or obligated person with
respect to municipal financial products or the issuance of municipal
securities, including advice with respect to the structure, timing,
terms, and other similar matters concerning such financial products or
issues, or (b) solicits a municipal entity, for compensation, on
behalf of an unaffiliated municipal securities dealer, municipal
advisor, or investment adviser to engage such party in connection with
municipal financial products, the issuance of municipal securities, or
investment advisory services.


Municipal Advisor, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/MUNICIPAL-ADVISOR.aspx.

(15.) An underwriter or investment banker is:
[a] municipal securities dealer that purchases a new issue of
municipal securities from the issuer for resale in a primary
offering. The underwriter may acquire the securities either by
negotiation with the issuer or by award on the basis of competitive
bidding.


Underwriter or Investment Banker, MUN. SEC RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/GlossaryDefinition/UNDERWRITER-OR-INVESTMENT-BANKER.aspx.

(16.) See generally ROBERT DOTY, BLOOMBERG VISUAL GUIDE TO MUNICIPAL BONDS, ch. 3-5 (2012) (explaining general types of securities).

(17.) Section 6-8B-10 of the South Dakota Codified Laws governs public and private sales of bonds. S.D.C.L. [section] 6-8B-10 (2004). The statute states:
[t]he governing body may sell its bonds at a public or private sale at
the price or prices the governing body determines. If the governing
body determines to sell bonds at a public sale, no bonds may be sold
until the sale has been advertised once a week for at least two
successive weeks the first publication being at least ten days before
the sale in the official newspaper of the public body, and if directed
by the governing body, in any other newspaper or publication. The
notice of sale shall describe the bond issue, the time and place of
sale, the method of competitive bidding, which method may describe
different forms or alternative forms of bids, and the place where bids
will be received.


Id.

(18.) According to state law,
[u]nless otherwise provided, no bonds may be issued either for general
or special purposes by any public body unless at an election sixty
percent of voters of the public body voting upon the question vote in
favor of issuing the bonds. The election shall be held in the manner
described by law for other elections of the public body.


S.D.C.L. [section] 6-8B-2 (2004). Another statute regarding issuance of bonds on approval by voters provides, "[i]f the requisite percentage of the voters cast their vote in favor of a bond issue, the governing body without further act may issue bonds to the amount voted for and sell and negotiate the same." S.D.C.L. [section] 6-8 B-8 (2004).

(19.) An official statement is:
[a] document prepared by or on behalf of the issuer of municipal
securities in connection with a primary offering that discloses
material information on the offering of such securities. Official
statements typically include information regarding the purposes of the
issue, how the securities will be repaid, and the financial and
economic characteristics of the issuer, conduit borrower or other
obligated person with respect to the offered securities. Investors and
market intermediaries may use this information to evaluate the credit
quality of the securities and potential risks of the primary offering.


Official Statement, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/OFFICrAL-STATEMENT-_OS_.aspx.

(20.) Under South Dakota law, a bond is defined as "any obligation for the payment of a specified sum of money at a specified future date, for the repayment of money borrowed by a public body, issued by a public body pursuant to authority granted in any law, including but not limited to revenue bonds, assessment bonds, and general obligation bonds." S.D.C.L. [section] 6-8B-l(l) (2004). Under federal law, a bond is defined as "any obligation of a State or political subdivision thereof under section 103(c)(1)." 26 C.F.R. [section] 1.150-1 (2016).

(21.) Under federal law, issue date means:
the first date on which the issuer receives the purchase price in
exchange for delivery of the evidence of indebtedness representing any
bond included in the issue. Issue date means, in reference to a bond,
the date on which the issuer receives the purchase price in exchange
for that bond. In no event is the issue date earlier than the first
day on which interest begins to accrue on the bond or bonds for
Federal income tax purposes.


26 C.F.R. [section] 1.150-1.

(22.) An issuer is defined as "[a] state, territory, political subdivision, municipality, or governmental agency or authority that raises funds through the sale of municipal securities." Issuer, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/ISSUER.aspx.

(23.) An underwriter is defined as "[a] municipal securities dealer that purchases a new issue of municipal securities from the issuer for resale in a primary offering. The underwriter may acquire the securities either by negotiation with the issuer or by award on the basis of competitive bidding." Underwriter or Investment Banker, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/UNDERWRlTER-OR-INVESTMENT-BANKER.aspx.

(24.) Bond counsel is defined as:
[a]n attorney or law firm retained, typically by the issuer, to give
the traditional bond counsel opinion. Such opinion customarily opines
that the bonds have been validly issued and, if tax exemption is
intended, that the bonds are tax-exempt bonds. The opinion also may
address related matters, such as state or local tax exemption and the
enforceability of certain security provisions. Typically, bond counsel
may prepare, or review and advise the issuer regarding, authorizing
resolutions, bond contracts, official statements, validation
proceedings and litigation.


Bond Counsel, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/BOND-COUNSEL.aspx.

(25.) A trustee is defined as:
[a] financial institution with trust powers, designated by the issuer
or borrower, that acts, pursuant to a bond contract, in a fiduciary
capacity for the benefit of the bondholders in enforcing the terms of
the bond contract. In many cases, the trustee also acts as custodian,
paying agent, registrar and/or transfer agent for the bonds.


Trustee, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/TRUSTEE.aspx.

(26.) A municipal advisor is defined as:
[a] person or entity (with certain exceptions) that (a) provides
advice to or on behalf of a municipal entity or obligated person with
respect to municipal financial products or the issuance of municipal
securities, including advice with respect to the structure, timing,
terms, and other similar matters concerning such financial products or
issues, or (b) solicits a municipal entity, for compensation, on
behalf of an unaffiliated municipal securities dealer, municipal
advisor, or investment adviser to engage such party in connection with
municipal financial products, the issuance of municipal securities, or
investment advisory services.


Municipal Advisor, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/MUNICIPAL-ADVISOR.aspx.

(27.) The process of "credit enhancement is using a third-party guarantee to lower risk and costs when borrowing money. Municipal bond insurance is a good example of credit enhancement; using a bank letter of credit or state intercept program is another." JOE MYSAK, ENCYCLOPEDIA OF MUNICIPAL BONDS 42 (2012).

(28.) An underwriter's counsel is defined as:
[a]n attorney or law firm retained to represent the interests of an
underwriter in connection with the purchase of a new issue of
municipal securities. The duties of underwriter's counsel may include
review of the issuer's bond resolution and documentation on behalf of
the underwriter; review of the accuracy and adequacy of disclosure in
the official statement; preparation of the agreement among
underwriters, purchase contract and/or the official statement;
assisting the underwriter in meeting the underwriter's due diligence
obligation; and delivery of a 10b-5 opinion.


Underwriter's Counsel, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Defmition/UNDERVVRITERS-COUNSEL.aspx.

(29.) Disclosure counsel is defined as "[a]n attorney or law firm retained by the issuer to provide advice on issuer disclosure obligations and to prepare the official statement and/or continuing disclosure agreement." Disclosure Counsel, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/DlSCLOSURE-COUNSEL.aspx.

(30.) Selling group is defined as an attorney who represents:
[a] group of municipal securities dealers that assists in the
distribution of a new issue of municipal securities. Selling group
members are able to participate in the initial distribution at a
concession or dealer's allowance (i.e., at a discount from the public
offering price, which discount may be less than or equal to the total
takedown) but do not participate in residual syndicate profits nor
share any liability for any unsold balance.


Selling Group, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013),

http://www.msrb.org/Glossary/Definition/SELLING-GROUP.aspx.

(31.) An attorney representing the bond insurer, bank letter of credit provider or other programs of state governments or federal agencies.

(32.) A feasibility consultant is defined as "[a]n expert that prepares a feasibility study." Feasibility Consultant, MUN. SEC. RULEMAKING BD., GLOSSARY OF MUNICIPAL SECURITIES TERMS (2013), http://www.msrb.org/Glossary/Definition/FEASIBILITY-CONSULTANT.aspx.

(33.) An accountant that prepares a report on an entity's financial position and results of operations for a given period of time.

(34.) An attorney who represents the trustee.

(35.) Compare S.D.C.L. ch. 16-18 Appendix A (outlining the fiduciary duties of an attorney), with MUN. SEC RULEMAKING BD., RULE G-42 (Aug. 12, 2016), http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rulc-G-42.aspx (outlining the fiduciary duty owed by a municipal advisor).

(36.) See 15 U.S.C. [section] 77e (Westlaw 2018) (making it unlawful for any person, using interstate commerce, to sell any security unless a registration statement is in effect).

(37.) 15 U.S.C. [section] 78o-4(d) (Westlaw 2018) (original amendments at Pub. L. No. 94-29 [section] 13, 89 Stat. 131 (1975)). See also In re New York City Mun. Sec. Litig., 507 F. Supp. 169, 182-83 (S.D.N.Y. 1980) (discussing the purposes of the Tower Amendments).

(38.) MYSAK, supra note 27, at 119-20. Mysak goes on to explain the purpose of the MSRB:
[t]he Municipal Securities Rulemaking Board (MSRB) regulates firms and
banks that underwrite, trade, or sell municipal securities, as well as
financial advisors who counsel issuers. The self-regulatory organization
was established by Congress to oversee the market in 1975 after
"several fraud actions were brought by the SEC against municipal
securities professionals alleging improper and unethical trading and
selling practices," according to the MSRB's Manual. The MSRB today also
acts as the repository for official statements and disclosure notices
and is responsible for the collection and dissemination of real-time
trading data, which it posts on its Electronic Municipal Market Access
(EMMA) website. The organization is funded by fees on transactions of
bonds, collected from dealers. Under provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act passed in 2010, the Board
now also may collect half of enforcement penalties collected by the
Securities and Exchange Commission and a portion of the penalties
collected by the Financial Industry Regulatory Authority (FINRA) and
is permitted to impose fines of its own on dealers and advisors.


Based in Alexandria, Virginia, the MSRB has helped transform the municipal bond market from one that was small, with sales of $30 billion or $40 billion annually, and clubby, dominated by banks, insurance companies, and relative handful of professionals, into the institution it is today, used by thousands of state and local governments to finance operations and capital projects. On the investor front, the MSRB has tamed a market that was opaque and obscure, where trading activity and prices were unknown, and where disclosure was spotty at best and nonexistent at worst. It has also curbed the pay-to-play practices that were rife in the 1990s as well as sounded early warnings on the necessity of full and adequate disclosure to investors, and on such things as the proliferation of swap, yield burning, and bid rigging.

Id.

(39.) 15 U.S.C. [section] 78o-4 (Westlaw 2018). The Code states:

(1) Neither the Commission nor the Board is authorized under this chapter, by rule or regulation, to require any issuer of municipal securities, directly or indirectly through a purchaser or prospective purchaser of securities from the issuer, to file with the Commission or the Board prior to the sale of such securities by the issuer any application, report, or document in connection with the issuance, sale, or distribution of such securities.

(2) The Board is not authorized under this chapter to require any issuer of municipal securities, directly or indirectly through a municipal securities broker, municipal securities dealer, municipal advisor, or otherwise, to furnish to the Board or to a purchaser or a prospective purchaser of such securities any application, report, document, or information with respect to such issuer: Provided, however, That the Board may require municipal securities brokers and municipal securities dealers or municipal advisors to furnish to the Board or purchasers or prospective purchasers of municipal securities applications, reports, documents, and information with respect to the issuer thereof which is generally available from a source other than such issuer. Nothing in this paragraph shall be construed to impair or limit the power of the Commission under any provision of this chapter.

Id.

(40.) REPORT ON THE MUNICIPAL SECURITIES MARKET, supra note 7. The report states:
[i]n the absence of a statutory scheme for municipal securities
registration and reporting, the Commission's investor protection
efforts in the municipal securities market have been accomplished
primarily through regulation of broker-dealers and municipal securities
dealers, including through Exchange Act Rule 15c2-12, Commission
interpretations, enforcement of the antifraud provisions of the
federal securities laws, and Commission oversight of the MSRB. The
existing regulatory scheme for broker-dealers and municipal securities
dealers can significantly impact municipal entities' and obligated
persons' business practices and the availability of information about
them in the marketplace.


Id.

(41.) Securities Act of 1933, 15 U.S.C. [section] 77q (Westlaw 2018).

(42.) 15 U.S.C. [section] 78j-2 (Westlaw 2018).

(43.) 17 C. F.R. [section] 240.10b-5 (Westlaw 2018).

(44.) Id.

(45.) 17 C.F.R. [section] 240.15c2-12(2010).

(46.) REPORT ON THE MUNICIPAL SECURITIES MARKET, supra note 7.

(47.) Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111 -203, (124 Stat.) 1376 (to be codified at 12 U.S.C [section] 5301).

(48.) Id.

(49.) See id. (amending previous law to include oversight of municipal securities).

(50.) See id. at [section] 978 (requiring a national securities association to be registered under the Securities Exchange Act of 1934).

(51.) MUN. SEC. RULEMAKING BD., MILESTONES IN MUNICIPAL SECURITIES REGULATION (2018), http://www.msrb.org/About-MSRB/About-the-MSRB/Creation-of-the-MSRB/Milestones-in-IVIunicipal-Securities-Regulation.aspx.

(52.) U.S. GOV'T ACCOUNTABILITY OFFICE. MUNICIPAL SECURITIES: OVERVIEW OF MARKET STRUCTURE, PRICING, AND REGULATION 2 (Jan. 2012), https://www.gao.gov/assets/590/587714.pdf.

(53.) Id. at "Highlights of GAO-12-265."

(54.) See id. at 14 n.28 ("There are no direct federal requirements on municipal issuers to produce or disseminate specific items of disclosure to the marketplace. Instead, the municipal securities disclosure regime is based on a combination of indirect disclosure obligations established through broker-dealers' role as underwriters in primary market issuances and voluntary issuer disclosures. Market participants have expressed frustration regarding the resulting lack of uniformity in the completeness and timeliness of issuer disclosures available in the municipal market, particularly in the secondary market. Section 976 of the Dodd-Frank Act also requires us to report on issues related to disclosure requirements for municipal issuers by July 2012, and this work is ongoing.").

(55.) REPORT ON THE MUNICIPAL SECURITIES MARKET, supra note 7.

(56.) See generally id. (providing recommendations designed to address concerns raised by those in the municipal securities market).

(57.) See id. at vii (noting that the legislative changes would not result in modification of the Tower Amendment).

(58.) U.S. SEC. AND EXCH. COMM'N, MUNICIPALITIES CONTINUING DISCLOSURE COOPERATION INITIATIVE (Mar. 2014), https://www.sec.gov/divisions/enforce/municipalities-continuing-disclosure-cooperation-initiative.shtml.

(59.) See id. ("Rule 15c2-12 generally prohibits any underwriter from purchasing or selling municipal securities unless the issuer has committed to providing continuing disclosure regarding the security and issuer, including information about its financial condition and operating data. Rule 15c2-12 also generally requires that any final official statement prepared in connection with a primary offering of municipal securities contain a description of any instances in the previous five years in which the issuer failed to comply, in all material respects, with any previous commitment to provide such continuing disclosure.").

(60.) Id.

(61.) Id.

(62.) Id.

(63.) Id.

(64.) Id.

(65.) U.S. SEC. AND EXCH. COMM'N, SEC CHARGES 71 MUNICIPAL ISSUERS IN MUNI BOND DISCLOSURE INITIATIVE (Aug. 24, 2016), https://www.sec.gov/news/pressrelease/2016-166.html.

(66.) See id. (outlining the SEC orders for each state). See also In re Tea Area Sch. Dist. 41-5, South Dakota, File No. 3-17478 (Aug. 24, 2016), https://www.sec.gov/litigation/admin/2016/33-10185.pdf (ordering the Tea Area School District to "cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act").

(67.) 17 C.F.R. [section] 240.15c2-12 (2010).

(68.) See generally Bradley J. McAllister, The Impact of the Dodd-Frank Whistleblower Provisions on FCPA Enforcement and Modern Corporate Compliance Programs, 13 BERKELEY Bus. L. J. 45 (2017) (discussing the various impacts of the Dodd-Frank Act on disclosure compliance).

(69.) SR-MSRB-2011-03 (Feb. 9, 2011) Proposed Rule Change to Amend Rule G-23, on Activities of Financial Advisors, and an Interpretive Notice to Rule G-23 Notice of Filing of Amendments to Rule G-23, on Activities of Financial Advisors, Exchange Act Release No. 34-63946, File No. SR-MSRB-2011-03, 5-6 (Feb. 22, 2011), https://www.sec.gov/rules/sro/msrb/2011/34-63946.pdf.

(70.) Id. at 7.

(71.) MUN. SEC. RULEMAKING BD., GUIDANCE ON IMPLEMENTATION OF INTERPRETIVE NOTICE CONCERNING THE APPLICATION OF MSRB RULE G-17 TO UNDERWRITERS OF MUNICIPAL SECURITIES (July 18, 2012), http://www.msrb.org/Rules-and-lnterpretations/Regulatory-Notices/2012/2012-38.aspx. See also MUN. SEC. RULEMAKING BD., RULE G-23 (2018), http://www.msrb.org/Rules-and-lnterpretations/MSRB-Rules/General/Rule-G-23.aspx (providing an overview of the purpose and applicability of Rule G-23).

(72.) Underwriter G-17 Form Letter, Meierhenry Sargent LLP (on file with author).

(73.) See supra note 39 (discussing the lack of regulation of municipal advisors).

(74.) See supra note 39 (noting the lack of requirements from the SEC or other federal agencies).

(75.) Supra notes 47-49.

(76.) 15 U.S.C. [section] 78o-4(e)4(A)(i) (Westlaw 2018).

(77.) Id. at [section] 78o-4(e)4(B).

(78.) Id. at [section] 78o-4(e)4(C).

(79.) MUN. SEC. RULEMAKING BD., RULE A-12 (2018), http://www.msrb.org/Rules-and-lnterpretations/MSRB-Rules/Adrainistrative/Rule-A-12.aspx.

(80.) MUN. SEC. RULEMAKING BD., RULE G-3 (2018), http://www.msrb.org/Rules-and-lnterpretations/MSRB-Rules/General/Rule-G-3.aspx.

(81.) MUN. SEC. RULEMAKING BD., RULE G-44 (2018), http://www.msrb.org/Rules-and-lnterpretations/MSRB-Rules/General/Rule-G-44.aspx.

(82.) MUN. SEC RULEMAKING BD., RULE G-37 (2018), http://www.msrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-37.aspx.

(83.) MUN. SEC. RULEMAKING BD., RULE G-20 (2018), http://www.rnsrb.org/Rules-and-Interpretations/MSRB-Rules/General/Rule-G-20.aspx.
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