Financial Regulatory Forum

By Lisa Lambert and Joan Gralla

WASHINGTON/NEW YORK, Aug 19 (Reuters) – Municipal bond issuers are on high alert after the Securities and Exchange Commission charged the state of New Jersey with fraud for failing to disclose to bond buyers it had underfunded the state’s pensions.

The SEC move on Wednesday was groundbreaking for several reasons. It was the first time the SEC charged a state for violating federal securities laws. New Jersey agreed to settle the case.

It also highlighted the increasing attention the federal government is paying to those who sell municipal bonds, the tax-exempt debt that pay for roads, bridges, schools and hospitals.

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WASHINGTON, March 2 (Reuters) – The Internal Revenue Service has agreed to work more closely with the Securities and Exchange Commission to regulate the U.S. municipal bond market, the IRS said on Tuesday, adding the two federal agencies had signed memorandum of understanding.

“This memorandum reflects the commitment both agencies have in using all means possible to ensure the municipal bond market operates in accordance with all the laws that govern it,” said IRS Commissioner Doug Shulman in a statement.

Under the agreement, the two agencies will identify issues and trends in the municipal securities industry and “enhance performance” in regulating the $2.8 trillion market.