MuniLand

Should the SEC hire bounty-hunters?

The majority of pundits and market observers have only tuned into the effectiveness of the SEC as financial market regulator since 2008, when the financial system nearly collapsed. So far, criticism has been relatively shallow. But when one of the most influential securities attorneys in America, Columbia University’s John Coffee, weighs in on the effectiveness of the SEC’s enforcement actions, we should all take note. Coffee’s SEC biography gives some background on his preeminence:

According to a recent survey of law review citations, Professor Coffee is the most cited law professor in law reviews in the combined corporate, commercial, and business law field.

And what does Professor Coffee have to say about the efforts of the SEC to prosecute financial market lawbreakers? He wrote on the CLS Blue Sky Blog:

A disturbingly persistent pattern has emerged in U.S. Securities and Exchange Commission enforcement cases that involves three key elements: (1) The commission rarely sues individual defendants at large financial institutions, settling instead with the entity only; (2) when it does sue individual defendants, it frequently loses; and (3) the penalties collected by the commission from corporate defendants are declining and, in any event, are modest in proportion to the profits obtained.

Coffee’s first and second observations are the ones that commentators most often focus on. Why haven’t any bankers, who caused the global financial system to collapse, gone to jail? Coffee contrasts the SEC’s approach with another financial overseer, the FHFA, which has been indicting individuals:

A new push for transparency in muniland

SEC Commissioner Elisse Walter spoke at the SIFMA Municipal Bond Summit yesterday, and her message came across loud and clear. She said that despite enormous advances in technology, decentralized muniland trading is still too hard to understand from the outside. She said that although 75% of municipal bonds are held by retail investors through direct ownership, money market funds, mutual funds and closed end funds, retail investors are still “afforded second class treatment.”

Walter led a two-year effort to assess the hurdles that retail investors face in the municipal bond market. The SEC held three field hearings on the municipal market over the last two years, and Walter said one thing that struck her were the retail investors who said that they couldn’t get pricing for their municipal bonds. Walter seems dedicated to fixing that problem. Transparent bond pricing – the bedrock of a stable and fair market – has been unavailable to investors for decades in muniland.

Walter’s statements echoed the findings of the SEC muni report (summarized by the law firm Bingham):

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