On February 7, 2020, the SEC’s Office of Municipal Securities (“OMS”) issued a staff legal bulletin discussing the applicability of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Exchange Act Rule 10b-5 (collectively, the “Antifraud Provisions”) to all statements of municipal issuers and obligated persons (generally referred to here as “Issuers”), including annual and continuing disclosures filed on EMMA.

The bulletin notes that the SEC has previously stated that “when a municipal issuer releases information to the public that is reasonably expected to reach investors and the trading markets, those disclosures are subject to the antifraud provisions because such statements are a principal source of significant, current information about the municipal issuer.” Rule 10b-5, in part, prohibits, in connection with the purchase or sale of any security, the making of any untrue statement of material fact or omitting 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.

Issuers can take comfort in the fact that liability under the Antifraud Provisions first requires scienter, or the intent to deceive, manipulate or defraud. Further, the information or statement must significantly alter the total mix of information available to a reasonable investor to be considered “material” information subject to the Antifraud Provisions. The bulletin cautions that when an Issuer has not fulfilled its continuing disclosure responsibilities, public statements by the Issuer may take on more materiality because the “total mix” of information available to investors is more reliant on the public statements, although compliance with its continuing disclosure responsibilities does not necessarily make an Issuer’s other public statements less material.

Examples of public statements that could run afoul of the Antifraud Provisions:

  • Websites. Issuers are responsible for the accuracy of statements on their websites and should take care that the information is accurate and not misleading. Issuers should provide an “as of” date for any posting or document on the website so it is clear to viewers whether information is current or historical. Issuers should also be careful about whether they are endorsing or adopting information (and thereby adopting potential antifraud liability for such information) accessed through a hyperlink on the Issuer’s website.

  • Public Reports. Issuers often prepare reports that include financial and operating data for delivery to other governmental entities or are made available to third parties or the public separate from EMMA filings. Issuers should take care that this information is consistent with information filed on EMMA and that it is accurate. If the report contains material information that is not included in existing EMMA filings, the Issuer should consider with legal counsel whether a voluntary or material event filing on EMMA is appropriate.

  • Statements by Officials. Verbal statements by public officials, such as in speeches, public announcements, and interviews is another way that Issuers may add material information to the total mix of information available to investors. Issuers should make sure that public officials are aware of the Antifraud Provisions; if the public official is not directly involved in the Issuer’s regular continuing disclosure process and thus not knowledgeable of the Issuer’s existing disclosures, the Issuer may want to implement a process for a designated person or office to review speeches, public announcements and interview talking points ahead of time to confirm compliance with the Antifraud Provisions. If Issuers don’t already engage in regular training, Issuers should consider training public officials and top staff about the Antifraud Provisions and the Issuer’s disclosure obligations at the time of onboarding and perhaps annually.

Issuers should also consider, when preparing annual continuing disclosure filings, whether there is any other material information that should be disclosed (beyond the required disclosures enumerated in the continuing disclosure undertaking) in order to make the information accurate and not misleading about the Issuer’s financial condition or results of operations.

Although OMS bulletins have no legal force or effect, they provide insight on areas of concern for the SEC and often provide guidance responsive to changing technology or industry practices. OMS Bulletin No. 21 supplements and re-emphasizes the guidance provided by the Commission in its 1994 Interpretive Release.

Click here to see the full text of OMS Staff Legal Bulletin No. 21.