On May 6, 2013, the SEC charged the City of Harrisburg, PA with securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available
to municipal bond investors was either incomplete or outdated. Specifically, an SEC investigation found that the misleading statements were made in the city’s budget report, annual and mid-year financial statements, and a State of the City address. Further, the SEC found that Harrisburg failed to comply with requirements to provide certain ongoing financial information and audited financial statements for the benefit of investors holding hundreds of millions of dollars in bonds issued or guaranteed by the city.
Unfortunately, as a result of Harrisburg’s non-compliance from 2009 to 2011, in order to obtain current information about Harrisburg’s finances, investors were required to search for city’s other public statements but very little information about the city’s fiscal situation was publicly available elsewhere. As a result, the SEC separately issued a report on May 6th addressing public official’s disclosure obligations and their potential liability under the federal securities laws for public statements made in the secondary market for municipal securities.
According to the SEC’s order, Harrisburg’s mid-year fiscal report for 2009 was designed to provide simply a snapshot of budget-to-actual figures at the middle of the year. This mid-year point totaled $2.3 million but the report did not reference any of the guarantee payments the city had made on the municipal resource recovery facility debt. The SEC order mandates Harrisburg to cease and desist from committing or causing Section 10(b) of the Securities Exchange Act of 1934 violations and Rule 10b-5. Harrisburg neither admitted nor denied the findings in the SEC’s order and in the settlement.