The Securities Law of Public Finance 8/14/2017 - pli.eduVol. 1...The Securities Law of Public...

The Securities Lawof Public Finance

THIRD EDITION

VOLUME 1

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PLI’S COMPLETE LIBRARY OF TREATISE TITLES

ART LAWArt Law: The Guide for Collectors, Investors, Dealers & Artists

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The Securities Law of Public FinanceSecurities Litigation: A Practitioner’s GuideSocial Media and the LawSoderquist on Corporate Law and PracticeSovereign Wealth Funds: A Legal, Tax and Economic PerspectiveA Starter Guide to Doing Business in the United StatesTechnology Transactions: A Practical Guide to Drafting and Negotiating Commercial

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The Securities Lawof Public Finance

THIRD EDITION

ROBERT A. FIPPINGER

VOLUME 1

Incorporating Release No. 6September 2017

#206155

Practising Law InstituteNew York City

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This work is designed to provide practical and usefulinformation on the subject matter covered. However, it issold with the understanding that neither the publisher northe author is engaged in rendering legal, accounting, orother professional services. If legal advice or other expertassistance is required, the services of a competent profes-sional should be sought.

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Copyright © 1988, 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2001, 2002,2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014,2015, 2016, 2017 by Practising Law Institute.

First edition 1988Second edition 1993Third edition 2011

All rights reserved. Printed in the United States of America. No part ofthis publication may be reproduced, stored in a retrieval system, ortransmitted in any form by any means, electronic, mechanical, photocopying,recording, or otherwise, without the prior written permission of PractisingLaw Institute.

LCCN: 93083371ISBN: 978-1-4024-1642-2

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For My Family

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About the Author

ROBERT A. FIPPINGER served as Chief Legal Officer to the MunicipalSecurities Rulemaking Board from March 2015 through July 2017.Previously, he had been a partner and senior counsel in the New Yorkoffice of Orrick, Herrington & Sutcliffe and had specialized in the lawof public finance since 1970. After receiving his undergraduate degreefrom Duke University and his law degree from the University ofMichigan Law School, Mr. Fippinger received a Ph.D. in 1969 atNorthwestern University in its law and politics program.

Mr. Fippinger was an adjunct professor at New York University lawschool where he taught the securities law of public finance, and he hastaught the securities law of public finance at Hofstra Law School. Hewas a visiting lecturer in law at Yale University law school where hetaught the law of public finance for a four-year period.

In 2007, the National Association of Bond Lawyers awardedMr. Fippinger its annual Friel Medal for distinguished service in publicfinance. In 2010, he was appointed to serve as a member of the Munic-ipal Securities Rulemaking Board, and was reappointed to a three-yearterm in 2014. He served on the Board until his appointment as ChiefLegal Officer in 2015. Any information in this book related torulemaking activity of the MSRB since October 1, 2010, is carefullyrestricted to information provided by the MSRB in its public notices andinterpretations that are available on the MSRB website at www.msrb.org.

(Fippinger, Rel. #6, 9/17) ix

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Table of Chapters

VOLUME 1

PART I INTRODUCTION

Chapter 1 Distinguishing the Securities Law ofPublic Finance from the Securities Lawof Corporate Finance

PART II STRUCTURES OF NEW ISSUES, INVESTMENT VEHICLES,AND DERIVATIVES PRODUCTS

Chapter 2 1933 Act Issues in Public Finance

Chapter 3 Investment Company Products in Public Finance

Chapter 4 Financial and Derivative Products

PART III LEGAL ISSUES IN THE DISTRIBUTION OF

NEW ISSUES OF MUNICIPAL SECURITIES

Chapter 5 New Issue Timing Under Contract Law andSecurities Law from Preliminary Official Statementto Closing

Chapter 6 Dissemination of New Issue Offering Documents

Chapter 7 Underwriters’ Due Diligence on New Issues ofMunicipal Securities

Chapter 8 Disclosure Issues

Chapter 9 Continuing Disclosure

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VOLUME 2

PART IV REGULATED ENTITIES IN PUBLIC FINANCE

Chapter 10 General Issues in the Regulation ofMunicipal Broker-Dealers

Chapter 10A MSRB Broker-Dealer Rules

Chapter 11 Municipal Advisor Regulation

Chapter 12 Investment Adviser Regulation

Chapter 13 Developments in the Municipal SecuritiesMarketplace

PART V PUBLIC FINANCE LITIGATION AND ENFORCEMENT

Chapter 14 Fraud Concepts in Public Finance

Chapter 15 SEC Enforcement Powers and Criminal Violations

Chapter 16 The Sovereign Immunity Defense

THE SECURITIES LAW OF PUBLIC FINANCE

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Table of Contents

VOLUME 1

About the Author ................................................................................ix

Table of Chapters ...............................................................................xi

PART I INTRODUCTION

Chapter 1 Distinguishing the Securities Law ofPublic Finance from the Securities Lawof Corporate Finance

§ 1:1 The Diversity of Municipal Securities ............................ 1-3§ 1:2 Distinctions Between Municipal Securities and

Corporate Securities........................................................ 1-7§ 1:2.1 Debt/Equity and Public/Private Conceptual

Distinctions ............................................................. 1-7§ 1:2.2 Practical Distinctions Under Federal Tax Laws

and Federal Securities Law..................................... 1-10§ 1:2.3 Illustrations of the Importance of

Constitutional Law to Public Finance ................... 1-12[A] Whether the Public Financing of a

Professional Sports Stadium Is aValid Public Purpose ....................................... 1-14

[B] Whether the Public Financing of aSectarian School Violates State and FederalEstablishment of Religion Clauses.................. 1-17

§ 1:2.4 The Public Financing of Nonprofit Corporationsin a Three-Sector Economy.................................... 1-21[A] Federal Income Tax Exemption for

Nonprofit Corporations .................................. 1-24[B] Tax-Exempt Financing of Nonprofit

Corporations ................................................... 1-26[C] 1933 Act Exemption for Securities

Issued by Nonprofit Corporations .................. 1-28§ 1:3 Municipal Securities and Government Securities......... 1-29

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§ 1:4 The Issuers of Municipal Securities ............................. 1-33§ 1:4.1 States and Agencies of States................................. 1-34§ 1:4.2 Municipal Corporations and Quasi-Public

Corporations .......................................................... 1-36[A] The Public/Private Distinction........................ 1-37[B] Quasi-Public Corporations.............................. 1-38

§ 1:4.3 Special Purpose Districts........................................ 1-39§ 1:4.4 Public Authorities .................................................. 1-40§ 1:4.5 Joint Powers Agencies and Interstate Compacts.... 1-42§ 1:4.6 Indian Tribal Governments.................................... 1-45

§ 1:5 Illustrations of the Public Financing of PrivateActivity ......................................................................... 1-47

§ 1:5.1 Government-Owned Hotels, Privately Operated.... 1-47§ 1:5.2 Public Financing of Sports Stadiums for

Professional Sports Teams...................................... 1-51§ 1:5.3 Nonprofit Museums and Performing Arts

Centers................................................................... 1-53§ 1:5.4 Nonprofit Hospital and University Affiliations

with For-Profit Business ......................................... 1-55§ 1:5.5 Is an Airport Public or Private?.............................. 1-58§ 1:5.6 Public-Private Partnerships .................................... 1-64

§ 1:6 Public and Private Sources of Security.......................... 1-66§ 1:6.1 General Obligation Bonds and Notes .................... 1-66§ 1:6.2 Revenue Bonds....................................................... 1-69

[A] Revenue Bonds and Project Finance ............... 1-70[B] Revenue Bonds and Structured Finance.......... 1-71[C] Revenue Bonds Compared with General

Obligation Bonds ............................................ 1-72§ 1:6.3 Certificates of Participation.................................... 1-75§ 1:6.4 Derivative Products................................................ 1-76§ 1:6.5 State Law Protection for Holders of Municipal

Securities................................................................ 1-77[A] Is There a Fiduciary Duty of Issuers

Owed to Debtholders? .................................... 1-77[B] State Securities Law ........................................ 1-83[C] Laws Governing Issuers .................................. 1-83

§ 1:7 A Brief Overview of the Securities Law ofPublic Finance .............................................................. 1-84

§ 1:7.1 The Emphasis on Regulating Underwriters andBroker-Dealers........................................................ 1-86

§ 1:7.2 The Disclosure Obligation on Issuers ofMunicipal Securities .............................................. 1-88

§ 1:7.3 The Importance of Enforcement ............................ 1-89§ 1:7.4 Determining Whether the Municipal or

Corporate Regulatory System Applies .................... 1-91


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[A] Focus on the Issuer and the Security .............. 1-91[B] The Boundaries of the Definition of

“Municipal Security” ...................................... 1-93[C] Public-Private Partnership Illustrations......... 1-100

Figure 1-1 Public-Private DBFO Partnership......................... 1-100Figure 1-2 Public-Private DBO Partnership........................... 1-101

[D] Tax-Exempt Securities That Are NotMunicipal Securities ..................................... 1-101

§ 1:7.5 Self-Regulation; the MSRB................................... 1-103§ 1:7.6 The Dodd-Frank Act............................................ 1-104§ 1:7.7 SEC Power to Regulate Governance Standards

for Issuers of Municipal Securities....................... 1-105[A] Private Company Background....................... 1-105[B] Effect of Private Company Corporate

Governance Rules on Issuers ofMunicipal Securities ..................................... 1-107

[C] Effect of Enforcement Actions againstMunicipal Issuers.......................................... 1-107

[D] Effect of the SEC’s MCDC Initiative onMunicipal Governance.................................. 1-110

§ 1:7.8 The Regulatory Implications ofan Opaque Trading Market .................................. 1-112

§ 1:7.9 The SEC’s Forward Agenda for the Regulation ofthe Municipal Securities Market ........................... 1-115[A] Disclosure Practices ...................................... 1-115[B] Market Structure........................................... 1-116

PART II STRUCTURES OF NEW ISSUES,INVESTMENT VEHICLES, AND DERIVATIVES PRODUCTS

Chapter 2 1933 Act Issues in Public Finance

§ 2:1 The Elements of a Section 3(a)(2) RegistrationExemption for States, Political Subdivisions, andInstrumentalities ............................................................ 2-4

§ 2:1.1 Distinctions Between Securities Law andTax Law Analysis of Political Subdivisions andInstrumentalities; Legislative Intent ........................ 2-6[A] 1933 Act Definition of Political Subdivision

and Instrumentality: Legislative Intent ............ 2-7[B] Section 3(a)(2) Public Instrumentalities.......... 2-13[C] Tax Law Political Subdivisions........................ 2-15[D] Tax Law Instrumentalities .............................. 2-17

(Fippinger, Rel. #6, 9/17)

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[E] Section 103 Constituted Authorities .............. 2-20[F] The 2016 IRS Proposed Regulations

Regarding the Definition ofPolitical Subdivision........................................ 2-21

§ 2:1.2 Multiple Securities in a Single Transaction ........... 2-23Figure 2-1 Financing of Hydroelectric Generating Plant......... 2-25§ 2:2 Analyzing a Transaction Under Section 3(a)(2) and

Rule 131 ....................................................................... 2-27§ 2:2.1 Taxable Private Activity Bonds............................... 2-37

[A] Rule 131(b): General Revenues of aGovernmental Unit ........................................ 2-38

[B] Rule 131(b): Multifamily HousingAs Public Projects ........................................... 2-39

§ 2:2.2 Taxable Municipal Securities That Are NotPrivate Activity Bonds............................................ 2-41

§ 2:3 Determining Whether an Instrument in aFinancing Structure Is a Security ................................... 2-43

§ 2:3.1 Corporate Guarantees ............................................ 2-46§ 2:3.2 Financial Guarantees ............................................. 2-48

[A] Monoline Bond Insurance .............................. 2-48[B] A State Bond Insurance Program.................... 2-51[C] Letters of Credit, Reimbursement

Agreements, and Liquidity Facilities............... 2-53§ 2:3.3 Participation Certificates and Custody Receipts .... 2-59

§ 2:4 Is the “Separate Security” Separate? ............................. 2-63§ 2:4.1 Corporate Guarantees ............................................ 2-63§ 2:4.2 Participations: The Mirror-Image Theory .............. 2-69§ 2:4.3 Guaranteed Investment Contracts......................... 2-77

§ 2:5 Does the Separate Security Have Its Own IndependentBasis for Exemption?...................................................... 2-80

§ 2:6 Wrapping Nonexempt Securities with ExemptSecurities ...................................................................... 2-84

§ 2:6.1 Securities Guaranteed by Banks............................. 2-85§ 2:6.2 Securities Guaranteed by Governments................. 2-87§ 2:6.3 The SEC’s Financial Guaranty Study .................... 2-89

§ 2:7 Analyzing Contractual Agreements As Guarantees...... 2-91§ 2:7.1 Use Agreements ..................................................... 2-92§ 2:7.2 Power Supply Contracts ......................................... 2-94

[A] Electricity Supply Agreements ........................ 2-94[B] Prepaid Natural Gas Supply Agreements........ 2-95

§ 2:7.3 Management Contracts ......................................... 2-96§ 2:7.4 Distinguishing Issuers of Securities and

Obligated Persons................................................... 2-97§ 2:8 Derivative Products and Securitizations ....................... 2-99


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§ 2:8.1 Custody Receipts.................................................. 2-100[A] Secondary Market Bond Insurance

Programs....................................................... 2-100Figure 2-2 Custody Receipts for Secondary Market Bond

Insurance Program............................................... 2-103[B] Stripped Coupons ......................................... 2-105

§ 2:8.2 Secondary Market Tender Option BondPrograms ............................................................... 2-108

Figure 2-3 Certificates for Secondary Market TenderOption Bond Program.......................................... 2-108

§ 2:8.3 Municipal Forwards ............................................. 2-111§ 2:8.4 Inverse Variable-Rate Bonds ................................. 2-113§ 2:8.5 Swaps ................................................................... 2-113§ 2:8.6 Government Securitization of Receivables ........... 2-115

[A] Securitization of Tobacco SettlementPayments....................................................... 2-116

[B] A Qualifying Tax-Exempt Issuer ................... 2-118[C] Taxable Financings........................................ 2-118[D] Securities Exempt Under Section 3(a)(4) ...... 2-120

§ 2:9 Municipal Fund Securities .......................................... 2-121§ 2:9.1 Prepaid College Tuition Programs........................ 2-121

[A] Is the Prepayment Contract a Security? ....... 2-122[B] Are the Contracts Exempt Securities? .......... 2-124

§ 2:9.2 Tuition Savings Programs .................................... 2-127[A] Is the Trust an Issuer? .................................. 2-129[B] What Security Does the Trust Issue?............ 2-130

Figure 2-4 A Trust As an Issuer of a Security ....................... 2-130[C] Is the Trust a Political Subdivision or

Instrumentality? ........................................... 2-132Figure 2-5 Public/Private Issues............................................. 2-133

§ 2:9.3 Government Investment Pools ............................ 2-136Figure 2-6 A Government Fund As an Issuer of Securities .... 2-138

[A] Instrumentalities of Political Subdivisions..... 2-139§ 2:10 Government Programs; Stimulus Taxable Bonds ....... 2-140

§ 2:10.1 Build America Bonds ........................................... 2-141[A] Direct Subsidy Taxable Bonds....................... 2-141[B] Tax Credit BABs............................................ 2-144

§ 2:10.2 Tax Credit Bonds ................................................. 2-145[A] General Description...................................... 2-145[B] Nongovernmental Issuers ............................. 2-146[C] Stripped Tax Credits ..................................... 2-147

§ 2:11 Nonprofit Corporations .............................................. 2-150§ 2:11.1 Nonprofit Corporations as Issuers ....................... 2-152

[A] Nonprofit Corporations That Are anIntegral Part of a Governmental Unit........... 2-153


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[B] Public Corporations Organized As LocalAuthorities or Special Purpose Districts ....... 2-156

[C] 63-20 Private Corporations OrganizedUnder General Nonprofit Corporation Law ....2-158

[D] Section 150 Nonprofit Corporation Issuers....2-165[D][1] Qualified Scholarship Funding Bonds....... 2-165[D][2] Volunteer Fire Departments...................... 2-169

§ 2:11.2 Nonprofit Corporations As Borrowers ................. 2-170[A] Tax-Exempt Qualified 501(c)(3) Bonds ......... 2-170[B] Related SEC No-Action Letters..................... 2-171

§ 2:11.3 Requirements for a Section 3(a)(4) Exemption..... 2-175[A] Organizations That Qualify Under

Section 3(a)(4) ............................................... 2-175[A][1] Tax-Exempt Status of Organization .......... 2-175[A][2] Section 501(c)(3) Requirements ................ 2-177[A][3] Definition of Charitable or

Educational Purposes ................................ 2-178[A][4] The Separate Perspective of the SEC

Staff........................................................... 2-179[B] Nonprofit Corporation Formed for

Private Business Purposes ............................. 2-181[C] Use of Bond Proceeds for

Unrelated Business Purposes ........................ 2-183§ 2:11.4 Deciding Whether to Request No-Action

Under Section 3(a)(2) or Section 3(a)(4);1934 Act Implications........................................... 2-186

§ 2:12 Exempt Transactions .................................................. 2-189§ 2:12.1 Parsing the Statutory Language of

Sections 4(a)(1) and 4(a)(2).................................... 2-190§ 2:12.2 Case Law Interpreting Section 4(a)(2) .................. 2-192§ 2:12.3 Regulation D: Background and Key Definitions.... 2-194

[A] Statutory Authority ....................................... 2-194[B] Issuers and Affiliates..................................... 2-195[C] Accredited Investors...................................... 2-195[D] Counting Purchasers..................................... 2-197[E] Purchaser Representative .............................. 2-198

§ 2:12.4 Regulation D: Manner of Offering ....................... 2-198[A] Communications That Are Not Offers of

Securities....................................................... 2-199[B] Preexisting Substantive Relationships........... 2-200[C] Speaking to Municipal Bond Clubs .............. 2-201

§ 2:12.5 Disclosure Issues.................................................. 2-203[A] Regulation D Information Requirements...... 2-203[B] Antifraud Rules ............................................. 2-204[C] Placement Agent Due Diligence ................... 2-205


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§ 2:12.6 Regulation D: The Three Safe Harbors................ 2-206[A] Rule 504: Offerings and Sales up to

$1 Million ...................................................... 2-206[B] Rule 505: Offerings and Sales up to

$5 Million ...................................................... 2-207[C] Rule 506: Offerings and Sales without

Regard to Dollar Amount...............................2-207§ 2:13 Restrictions on Resales of Nonpublic Offerings.......... 2-209

§ 2:13.1 Rule 144............................................................... 2-209§ 2:13.2 The Section 4(1½) Exemption ............................. 2-212§ 2:13.3 Rule 144A ............................................................ 2-212

§ 2:14 Side-by-Side Exempt Transactions and Issues ofExempt Securities ....................................................... 2-215

§ 2:14.1 General Integration Rules .................................... 2-215§ 2:14.2 Regulation A or Section 3(a)(2) Exempt

Securities and Private Placements........................ 2-218§ 2:15 Transitioning from the 1933 Act to the 1934 Act...... 2-220

§ 2:15.1 Structural Differences .......................................... 2-220§ 2:15.2 Separate Securities Under the 1934 Act .............. 2-221

Chapter 3 Investment Company Products inPublic Finance

§ 3:1 Investment Companies Organized to Invest inMunicipal Securities ....................................................... 3-3

§ 3:1.1 Municipal Unit Investment Trusts .......................... 3-6§ 3:1.2 Municipal Bond Funds............................................. 3-8

[A] Closed-End Bond Funds.................................... 3-8[B] Open-End Bond Funds (Mutual Funds) ............ 3-9

§ 3:2 Jurisdictional Reach of 1940 Act Concepts toCover Other Public Finance Programs.......................... 3-11

§ 3:2.1 An Issuer Engaged Primarily in the Businessof Investing ............................................................ 3-12

§ 3:2.2 An Issue of Securities Separate from theSecurities in Which the Issuer Invests................... 3-14[A] Secondary Market Programs to Sell Small

Denomination Participations in LargeDenomination Bonds...................................... 3-15

[B] Programs to Aggregate New Issuesinto a Pool ...................................................... 3-17

§ 3:2.3 Distinguishing UITs: Redeemable SecuritiesRepresenting an Undivided Interest in aPool of Specified Securities..................................... 3-19

§ 3:2.4 Constructing a Nonexempt Issuer froman Exempt Issuer ................................................... 3-20


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[A] Background: The Prudential Case................... 3-22[B] Section 2(b) Exemption for Government

Issuers............................................................. 3-25[C] Taxable Private Activity Bonds........................ 3-28

§ 3:2.5 Government Programs........................................... 3-32[A] Local Government Investment Pools.............. 3-32[B] Deferred Compensation Plans ........................ 3-34[C] Section 529 College Savings Programs ........... 3-38[D] Private Programs Based on Section 529.......... 3-40[E] Government Involvement in the Creation

of a Nonexempt Issuer.................................... 3-41§ 3:3 Use of Underlying 1940 Act Policies to

Inform Decisions on the Jurisdictional Reachof the Statute ................................................................ 3-43

§ 3:4 Certificate Programs in Public Finance ........................ 3-48§ 3:4.1 1940 Act Definition of Security Includes

Participations ......................................................... 3-48§ 3:4.2 Separate Issuers in Municipal Lease Financing

Programs ................................................................ 3-51§ 3:5 Custody Receipt Programs in Public Finance ............... 3-58

§ 3:5.1 Secondary Market Bond Insurance Programs ........ 3-59§ 3:5.2 Tender Option Bonds ............................................. 3-61§ 3:5.3 Stripped Coupons .................................................. 3-63§ 3:5.4 Municipal Forwards ............................................... 3-65

§ 3:6 Section 3(c) Exemptions ............................................... 3-67§ 3:6.1 Private Investment Companies: Section 3(c)(1) ..... 3-67

[A] The 100-Beneficial-Owner Rule...................... 3-67[B] No Public Offering .......................................... 3-68[C] Restricted Securities Under the 1940 Act....... 3-68[D] Integration Issues Under the 1940 Act........... 3-70

§ 3:6.2 Private Investment Companies: Section 3(c))(7) .... 3-72[A] Qualified Purchasers ....................................... 3-72[B] Qualified Institutional Buyers (QIBs) ............. 3-73[C] Conversion from a Section 3(c)(1)

Exemption to a Section 3(c)(7) Exemption ..... 3-73§ 3:6.3 Financial Institutions: Section 3(c)(2) .................... 3-73§ 3:6.4 Companies Purchasing Interests in

Equipment or Real Estate: Section 3(c)(5).............. 3-74[A] Purchasing Notes, Receivables, or

Interests in Equipment Leases ........................ 3-75[B] Purchasing Mortgages or Interests in

Real Estate Leases ........................................... 3-75§ 3:7 Structured Finance: Rule 3a-7 ...................................... 3-76§ 3:8 Municipal Money Market Funds: Rule 2a-7................. 3-77

§ 3:8.1 “Breaking the Buck”: Prelude to the2010 and 2014 Amendments to Rule 2a-7............ 3-77


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§ 3:8.2 Basic Policies of the 2014 Amendments................ 3-80[A] Fees and Gates................................................ 3-81[B] Floating Net Asset Value................................. 3-82[C] The Effect of the 2014 Amendments on

Municipal Money Market Funds .................... 3-83[D] The Effect of the 2014 Amendments on

Local Government Investment Pools.............. 3-85§ 3:8.3 Risk-Limiting Provisions: Portfolio Maturity ......... 3-86

[A] Variable-Rate Securities ................................... 3-87[B] Floating-Rate Securities .................................. 3-88

§ 3:8.4 Risk-Limiting Provisions: Portfolio Quality ........... 3-89[A] Second-Tier Securities ..................................... 3-90[B] Guarantees and Demand Features.................. 3-90

§ 3:8.5 Risk-Limiting Provisions: Portfolio Diversity......... 3-92[A] Second-Tier Securities ..................................... 3-92[B] National Tax-Exempt Funds ........................... 3-92[C] Single-State Tax-Exempt Fund ........................ 3-93[D] Diversification of Conduit Securities,

Demand Features, Guarantees, andSecond-Tier Securities ..................................... 3-93

§ 3:8.6 Portfolio Liquidity Requirements ........................... 3-94

Chapter 4 Financial and Derivative Products

§ 4:1 Municipal Asset-Backed Securities ................................. 4-3§ 4:1.1 SEC and Dodd-Frank Act Definitions of

Asset-Backed Securities ............................................ 4-5§ 4:1.2 Types of Public Finance Structures That May Be

Characterized As Exchange Act ABS Subject tothe Dodd-Frank Act ................................................. 4-6[A] Single-Family Housing Bonds ........................... 4-6[B] Student Loan Bonds.......................................... 4-7[C] Pools of Loans................................................... 4-9[D] Securitization of Municipal Receivables............ 4-9[E] Secondary Market Securitizations................... 4-10[E][1] Tender Option Bond Programs ................... 4-10[E][2] Equipment Lease Programs......................... 4-11

§ 4:1.3 Summary of Dodd-Frank Act ProvisionsRelated to Asset-Backed Securities ......................... 4-11[A] Credit Risk Retention ..................................... 4-12[B] Securitization Disclosure and Reporting......... 4-13[C] Representations and Warranties;

Enforcement Mechanisms .............................. 4-13[D] Due Diligence Requirements .......................... 4-14[E] Third-Party Due Diligence Reports................. 4-14


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§ 4:1.4 Rulemaking Activity in Response to theDodd-Frank Act That May Affect Public Finance.....4-14[A] Risk Retention ................................................ 4-14[A][1] State and Municipal Securitizations ........... 4-16[A][2] Student Loan Bonds.................................... 4-16[A][3] Tender Option Bonds.................................. 4-17[B] Representations and Warranties;

Disclosure of Requests forRepurchase...................................................... 4-19

[C] Third-Party Due Diligence Reports................. 4-21§ 4:2 Forward and Futures Contracts .................................... 4-23

§ 4:2.1 Forward Contracts in the Distribution ofMunicipal Securities .............................................. 4-27[A] Compliance with Rule 15c2-12 ...................... 4-30[A][1] No Offers Made .......................................... 4-31[A][2] Offers Made ................................................ 4-34[B] Forward Contract Terms................................. 4-37[B][1] Dual Closing............................................... 4-37[B][2] Representations........................................... 4-38[B][3] Termination Provisions............................... 4-39[B][4] Disclosure Agreements ............................... 4-40[C] Forward Delivery Investment Contracts

for Municipal Issuers ...................................... 4-43[C][1] Is the Forward Delivery Contract a

Separate Security? ....................................... 4-44[C][2] Disclosure Issues ........................................ 4-45[D] MSRB Rule G-17 Required Underwriter

Disclosure of Risks to Municipal Issuers........ 4-47§ 4:2.2 Municipal Bond Index Futures .............................. 4-48

§ 4:3 Municipal Interest Rate Swaps ..................................... 4-49§ 4:3.1 Risks to Municipal Issuers..................................... 4-52§ 4:3.2 SEC Enforcement Activity Related to

Municipal Derivatives............................................ 4-56§ 4:4 The Dodd-Frank Act Regulatory Scheme for

Municipal Interest Rate Swaps ..................................... 4-57§ 4:4.1 Jurisdictional Definitions....................................... 4-58

[A] Swaps and Security-Based Swaps .................... 4-58[B] Municipal Advisors and Municipal

Derivatives ...................................................... 4-60[C] Municipal Entities and Special Entities .......... 4-61

§ 4:4.2 Regulated Entities; Dealers and MajorParticipants ............................................................ 4-63[A] Swap Dealers and Security-Based Swap

Dealers ............................................................ 4-63[B] Major Swap Participants and Major

Security-Based Swap Participants.................... 4-66


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§ 4:4.3 General CFTC Business Conduct Standards ......... 4-70[A] CFTC Business Conduct Standards for

Interactions with All Counterparties .............. 4-72[B] CFTC Business Conduct Standards for

Interactions with Nonentity Counterparties .... 4-72[B][1] Disclosure of Material Information ............ 4-73[B][2] Suitability of Recommendations ................. 4-73

§ 4:4.4 CFTC Business Conduct Standards forInteractions with State and MunicipalSpecial Entities....................................................... 4-73[A] Swap Dealers Acting as Advisors to

State and Municipal Special Entities .............. 4-74[B] Swap Dealers and Major Swap Participants

Acting as Counterparties to State andMunicipal Special Entities .............................. 4-75

[C] Limitations on Political Contributions toOfficials of Governmental Special Entities ..... 4-77

[C][1] Swap Dealers .............................................. 4-77[C][2] Independent Representatives....................... 4-79

§ 4:4.5 Eligible Contract Participants................................. 4-79§ 4:4.6 Mandatory Clearing and Exchange Trading ........... 4-80

[A] Clearing If Clearable ....................................... 4-81[B] End Users ....................................................... 4-82

§ 4:4.7 CFTC Harmonization of the RegulatoryScheme for Commodity Trading Advisors,Swap Dealer Advisors, IndependentRepresentatives, and Municipal Advisors............... 4-82

§ 4:4.8 SEC Harmonization of the RegulatoryScheme for Municipal Advisors, CommodityTrading Advisors, Independent Representatives,and Swap Dealers................................................... 4-84

PART III LEGAL ISSUES IN THE DISTRIBUTION OF

NEW ISSUES OF MUNICIPAL SECURITIES

Chapter 5 New Issue Timing Under Contract Law andSecurities Law from Preliminary OfficialStatement to Closing

§ 5:1 Timeline in Public Finance New IssueDistributions................................................................... 5-2

§ 5:2 Offer and Sale Under the 1933 Act RegistrationRules ............................................................................... 5-5

§ 5:2.1 Offers ....................................................................... 5-6§ 5:2.2 Oral and Written Offers ........................................... 5-7

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§ 5:2.3 The Red Herring: Preliminary Prospectus ............... 5-9§ 5:2.4 Sales ....................................................................... 5-17

§ 5:3 Contracts in the Public Finance Timeline.................... 5-19§ 5:3.1 The Red Herring: Preliminary Official

Statement............................................................... 5-19§ 5:3.2 Master Agreement Among Underwriters ............... 5-23

[A] Initial Wire and Pricing Wires ........................ 5-23[B] Public Offering Price, Total Takedown,

and Concession............................................... 5-25[C] Participations .................................................. 5-27[D] Priority of Orders ............................................ 5-29[E] Representations and Agreements .................... 5-31[F] Contribution and Indemnification.................. 5-32

§ 5:3.3 The Bond Purchase Agreement.............................. 5-33§ 5:3.4 Notice of Sale in a Competitive Offering............... 5-45§ 5:3.5 Customer Contracts: Period from Pricing

Through Time of Formal Award............................ 5-47[A] Order Periods .................................................. 5-47[B] Conditional Allocations and Conditional

Trades.............................................................. 5-48[C] No Presale Time of Trade for Price

Reporting ........................................................ 5-51[D] Time of Formal Award.................................... 5-54[E] Time of First Execution of Trades................... 5-55

§ 5:3.6 Timeline for the Lead Manager ’s SyndicateProcedures Prior to First Execution........................ 5-57[A] Communication of Issuer Requirements

to the Syndicate .............................................. 5-57[B] Application for CUSIP Numbers .................... 5-58[B][1] Refunding Issues ......................................... 5-59[B][2] Legal Entity Identifiers................................ 5-61[C] Application for Depository Eligibility ............. 5-61[C][1] Deposit, Custody, and Immobilization....... 5-61[C][2] The Closing and Subsequent Trades........... 5-64[D] Submission of New Issue Information

to NIIDS ......................................................... 5-65§ 5:3.7 Customer Contracts: The Period from

Initial Trade Execution to Settlement .................... 5-68[A] MSRB Time of Trade and SEC Time of

Contract of Sale .............................................. 5-68[B] Confirmations................................................. 5-72[B][1] Verbal Commitments Before the Written

Confirmation: U.C.C. Article 8 ................... 5-72[B][2] Written Confirmation ................................. 5-75


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[C] Contract Law Implications of Preliminaryand Final Official Statements ......................... 5-77

[D] SEC Interpretation of Procedures forAmending Customer Contracts AfterNew Disclosures ............................................. 5-80

§ 5:4 Timing Issues Under the Antifraud Rules .................... 5-83§ 5:4.1 Time Frame of a Sale: From Preliminary

Official Statement Through Bond PurchaseAgreement to Initial Trade Executions................... 5-84[A] Time of Sale Disclosure: SEC Rule 159.......... 5-84[B] Time of Trade Disclosure: MSRB

Rule G-47 ....................................................... 5-87[C] Time of Sale Disclosure: Rule 10b-5............... 5-90[D] Stickering the Preliminary Official

Statement........................................................ 5-92§ 5:4.2 Time Frame of a Sale: From Bond Purchase

Agreement to Closing and Beyond......................... 5-94[A] Duration of “Sale” for Issuers and for

Underwriters ................................................... 5-94[B] Stickering the Final Official Statement........... 5-96

Chapter 6 Dissemination of New Issue OfferingDocuments

§ 6:1 Introduction.................................................................... 6-2§ 6:2 Information Dissemination in Registered Offerings....... 6-5

§ 6:2.1 Rule 15c2-8 and Section 4(3) ................................... 6-5§ 6:2.2 Electronic Dissemination in Registered Offerings..... 6-8§ 6:2.3 Securities Offering Reform....................................... 6-9

[A] Preliminary Prospectus ................................... 6-11[B] Final Prospectus: Access Equals Delivery ....... 6-12

§ 6:3 Information Dissemination Requirements forPublic Finance .............................................................. 6-15

§ 6:3.1 MSRB Rule G-32: Customer DisclosureRequirements ......................................................... 6-15[A] General Rule for Final Official Statement

Delivery........................................................... 6-15[B] Access Equals Delivery.................................... 6-16[C] Separate Securities .......................................... 6-17[D] Municipal Fund Securities .............................. 6-17

§ 6:3.2 Underwriter Primary Offering Submissions toEMMA ................................................................... 6-19[A] Form G-32 Information Dissemination ......... 6-19[B] Official Statement Submission ....................... 6-20


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[C] Standard of Care for Submissions andRule G-17 Time of Sale Disclosure ................ 6-21

[D] Preliminary Official Statement Submission.... 6-23[E] Exemption for Certain Limited Offerings ....... 6-24[F] Exemption for Certain Commercial Paper

Offerings ......................................................... 6-25[G] Advance Refunding Documents...................... 6-26[H] Official Statement Amendments or Stickers.... 6-27

§ 6:3.3 MSRB Continuing Disclosure Service.................... 6-27§ 6:3.4 MSRB Short-Term Securities Disclosure Service.... 6-28

[A] Auction Rate Securities................................... 6-28[B] Variable Rate Securities................................... 6-29

§ 6:3.5 Application of Rule G-32 to Remarketings andConversions Constituting Primary Offerings......... 6-30[A] Remarketings and Conversions of

Variable Rate Securities................................... 6-31[B] Conversions of Auction Rate Securities .......... 6-33

§ 6:3.6 SEC Rule 15c2-12 .................................................. 6-35[A] Participating Underwriters in Primary

Offerings ......................................................... 6-36[B] Obtain and Review.......................................... 6-41[C] Distribution of Preliminary Official

Statements ...................................................... 6-48[D] Distribution of Final Official Statements ....... 6-50

§ 6:4 The Distinction Between Dissemination Rules andAntifraud Rules............................................................. 6-56

§ 6:4.1 Updating the Prospectus During the DeliveryPeriod in a Registered Offering .............................. 6-57

§ 6:4.2 Unsold Allotments................................................. 6-60§ 6:4.3 The Conclusion for Public Finance ....................... 6-63

§ 6:5 Introduction to Electronic Dissemination inPublic Finance .............................................................. 6-64

§ 6:6 Electronic Primary Market Official StatementDisclosure and Dissemination...................................... 6-65

§ 6:6.1 Rule 15c2-12 Underwriter ’s Review ofOfficial Statement in Electronic Form ................... 6-66

§ 6:6.2 Rule 15c2-12 Electronic Dissemination................. 6-68§ 6:6.3 MSRB New Issue Dissemination Rules ................. 6-71

§ 6:7 Primary Market Electronic Competitive Sales .............. 6-71§ 6:7.1 Disintermediation.................................................. 6-73§ 6:7.2 Auction Administrator As Underwriter ................. 6-79§ 6:7.3 Primary Market Exempt Transactions ................... 6-87

§ 6:8 Issuer Websites ............................................................. 6-89§ 6:8.1 Coordination of EMMA Filings and

Issuer Website Postings .......................................... 6-90


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§ 6:8.2 Active Management of Website Information;Retention of Final Official Statements................... 6-91

§ 6:8.3 Hyperlinks ............................................................. 6-96§ 6:9 Online Road Shows Sponsored by Issuers .................... 6-97

§ 6:9.1 Background ............................................................ 6-97§ 6:9.2 Road Shows After Securities Offering Reform........ 6-99§ 6:9.3 Municipal Internet Road Shows .......................... 6-100

[A] The 2013 NetRoadshow No-Action Letter ....6-101[A][1] Application of Dissemination Rules to

Electronic Road Shows.............................. 6-102[A][2] Municipal Road Show Transmission to

Retail Investors ......................................... 6-103[B] Liability Issues in Municipal Internet

Road Shows................................................... 6-105

Appendix 6A MSRB Rule G-32....................................... App. 6A–1

Appendix 6B SEC Rule 15c2-12 ......................................App. 6B–1

Appendix 6C SEC Rule 15c2-8 ....................................... App. 6C–1

Chapter 7 Underwriters’ Due Diligence onNew Issues of Municipal Securities

§ 7:1 Who Is an Underwriter? ................................................. 7-4§ 7:1.1 1933 Act Background for Registered Offerings ........ 7-4

[A] Application of the Section 2(11) Definition...... 7-4[B] Participants Generally and Inadvertent

Underwriters ................................................... 7-10[C] Selling Group Members and

Nonparticipating Dealers ................................ 7-13[D] Control Persons .............................................. 7-14[E] “Coming to Rest”: Two Presumptions ............ 7-15

§ 7:1.2 Public Finance Antifraud Rules andRule 15c2-12 ........................................................... 7-18[A] Antifraud Terms and the Rule 15c2-12

Definition of Underwriter............................... 7-18[B] Policy Differences in Finding Underwriter

Status in the Registration Rules andthe Antifraud Rules......................................... 7-20

[C] Definitional Differences in the Meaning ofUnderwriter Under the Registration Rules andthe Antifraud Rules........................................... 7-22

[D] A Primary Offering Under Rule 15c2-12 ........ 7-23§ 7:1.3 Dealer Trades and Resales During the

Underwriting Period............................................... 7-25


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[A] Dealer Transactions Under Section 4 ofthe 1933 Act ................................................... 7-25

[B] Conditional Presale Trading andWhen-Issued Trading of MunicipalSecurities......................................................... 7-26

Figure 7-1 Dealer Trades During the Underwriting Period ..... 7-28[C] Primary Market Dealer Resales to

Customers....................................................... 7-30§ 7:1.4 Sales and Resales of Privately Placed Securities ..... 7-32

[A] Nonpublic Offerings........................................ 7-32[B] The Rule 15c2-12 Limited Placement

Exemption....................................................... 7-34[C] Downstream Sales of Restricted Securities:

Rule 144 and Rule 15c2-12 ............................ 7-36[D] Rule 144A ....................................................... 7-39

§ 7:1.5 Regulation M: Magnitude and Selling Effort.......... 7-40§ 7:2 Illustrations of Potential Redistributions,

Secondary Distributions, or Issuer Reofferings inPublic Finance .............................................................. 7-43

§ 7:2.1 Twenty-Seven Factors Used to DetermineUnderwriter Status................................................. 7-43

§ 7:2.2 Institutional “Investors” Flipping MunicipalSecurities................................................................ 7-45

§ 7:2.3 “Rolling Over” Commercial Paper ......................... 7-48§ 7:2.4 Remarketing Variable-Rate Securities..................... 7-51§ 7:2.5 Soliciting Orders on Auction Rate Securities ......... 7-54§ 7:2.6 Negotiating Forward Contracts.............................. 7-56§ 7:2.7 Resales for an Issuer Who Purchases Its Own

Securities in the Market......................................... 7-57§ 7:2.8 Tender Option Bond Programs............................... 7-61

§ 7:3 Due Diligence As a Responsibility ofUnderwriting Municipal Securities............................... 7-67

§ 7:3.1 Background Issues.................................................. 7-67[A] The Gatekeeper Theory in Public Finance ..... 7-67[B] Statutory Sources of the Underwriters’

Due Diligence Obligation ............................... 7-70[C] Nonlegal Reasons for Public Finance Due

Diligence ......................................................... 7-73§ 7:3.2 The Fair Dealing Basis of Responsibility ............... 7-74

[A] MSRB Rule G-17 ............................................ 7-78[B] MSRB Rule G-19 ............................................ 7-79

§ 7:3.3 The Implied Representation Basis ofResponsibility......................................................... 7-81

§ 7:3.4 SEC’s Interpretation of MunicipalUnderwriters’ Responsibilities ............................... 7-83


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[A] The General Standard..................................... 7-84[B] SEC Updates of the General Standard and

Extension to Issuer Continuing DisclosureUndertakings .................................................. 7-85

[C] Factors to Be Considered ................................ 7-87[D] Competitive Bidding ....................................... 7-90[E] SEC’s WPPSS Report ...................................... 7-91

§ 7:3.5 The Difference Between a Rule 15c2-12 Reviewand Due Diligence Obligations .............................. 7-93

§ 7:4 Illustrations of Key Components ofDue Diligence in Corporate Cases ............................... 7-95

§ 7:5 Practical Procedures for Conducting MunicipalDue Diligence ............................................................. 7-101

§ 7:5.1 General Principles................................................ 7-101[A] Knowledge of Industry and Issuer................. 7-101[B] Use of Proceeds............................................. 7-103[C] Checklists and Training................................ 7-104[C][1] The Upside of Checklists ......................... 7-104[C][2] The Downside of Checklists..................... 7-105[C][3] Comments of the SEC ’s Office of

Compliance Inspections andExaminations ............................................ 7-106

[D] The Document Request List; ReadingMinutes......................................................... 7-107

[E] Investigating Outside Sources....................... 7-109[F] Assignments to Underwriters’ Counsel ........ 7-110[G] The Due Diligence Meeting.......................... 7-111[H] Retaining Notes and Drafting Due

Diligence Memoranda................................... 7-112[I] 2012 Risk Alert on Supervision.................... 7-114

§ 7:5.2 Reasonable Prudence and Industry Standards...... 7-115§ 7:5.3 Comfort Letters.................................................... 7-118§ 7:5.4 Specific Due Diligence Procedures Required of

Orange County Underwriters in SECCease-and-Desist Orders...................................... 7-125[A] Review Based on Media Information ............ 7-128[B] Review of Prior Financings ........................... 7-129[C] Inquiry of Other Departments in

the Firm........................................................ 7-129§ 7:6 The Due Diligence Defenses in

Civil Litigation and Enforcement Actions .................. 7-132§ 7:6.1 Section 11 ............................................................ 7-132§ 7:6.2 Section 12(a)(2) .................................................... 7-137§ 7:6.3 Rule 10b-5............................................................ 7-140§ 7:6.4 Section 17(a) ........................................................ 7-145


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§ 7:7 Rule 176: Relevant Circumstances toEvaluate Corporate Due Diligence.............................. 7-147

§ 7:7.1 Historical Background to Rule 176 ...................... 7-147§ 7:7.2 WorldCom and Rule 176...................................... 7-153§ 7:7.3 Post-WorldCom Procedures Regarding Corporate

Financial Statements ............................................. 7-156§ 7:8 1988 Interpretation: Relevant Circumstances to

Evaluate Municipal Due Diligence ............................. 7-159§ 7:8.1 Rule 176 and the 1988 Interpretation

Compared ............................................................ 7-159Figure 7-2 Comparison of Rule 176 and the 1988

Interpretation....................................................... 7-160§ 7:8.2 Breaking Down Municipal Due Diligence ........... 7-161§ 7:8.3 Post-WorldCom Procedures Regarding Municipal

Financial Statements ............................................. 7-164§ 7:9 Liability of Nonlead Underwriters: Comanagers and

Syndicate Members..................................................... 7-169§ 7:9.1 The General Corporate Rule and

the Fundamental Difference in Public FinanceLiability ................................................................ 7-169

§ 7:9.2 Rule 176 and the Role of the NonleadCorporate Underwriters As a RelevantCircumstance ....................................................... 7-173

§ 7:9.3 1988 Interpretation and the Role ofthe Nonlead Municipal UnderwritersAs a Factor to Be Considered............................... 7-177

§ 7:10 Due Diligence Responsibilities of Broker-DealersActing As a Placement Agent in a Private Placementof Securities .................................................................. 7-179

§ 7:10.1 The Status of a Broker-Dealer Acting As aPlacement Agent .................................................. 7-179

§ 7:10.2 Due Diligence Responsibilities of a Broker-Dealerin a Limited Offering ............................................. 7-182[A] FINRA Notice on Regulation D Obligations

of Broker-Dealers............................................ 7-183[B] MSRB Guidance on Private Placement

Broker-Dealer Disclosure of Its Role toan Issuer ....................................................... 7-186

[C] Offers Limited to Institutional Investors ...... 7-189

§ 7:10.3 FINRA Notice Description of Due DiligenceProcedures in Regulation D Offering ................... 7-192


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Chapter 8 Disclosure Issues

§ 8:1 Comparisons Between Disclosure in Corporate andPublic Finance ................................................................ 8-3

§ 8:1.1 Developments in Corporate DisclosureSince the Financial Crisis ........................................ 8-3

§ 8:1.2 Principles-Based and Prescriptive Disclosure;the Materiality Standard .......................................... 8-8

§ 8:1.3 Trends in Corporate Governance andSustainability Disclosure........................................ 8-11

§ 8:2 Getting Organized ........................................................ 8-15§ 8:2.1 Issuer Policies and Procedures ............................... 8-15§ 8:2.2 Audit Committee and Disclosure Practices

Working Group ...................................................... 8-22§ 8:2.3 Presentation and Delivery of Important

Information............................................................ 8-25[A] Cross-Referencing ........................................... 8-25[B] Incorporation by Reference, Hyperlinks,

and Layering ................................................... 8-26§ 8:2.4 Disclosure Counsel: The Opportunity to Render

Complex Legal Information More Readable .......... 8-29§ 8:2.5 Issuer Websites....................................................... 8-31

[A] Considerations in Deciding Whether toHave a Website ............................................... 8-31

[B] Official Statement Archives ............................ 8-34[C] Is Website Disclosure “Public” Disclosure? .... 8-36[D] Hyperlinks from Websites to

Third-Party Sites ............................................. 8-39[E] Summary Statements on Websites ................. 8-41[F] Interactive Websites: Chat Rooms and Blogs.... 8-42[G] Website Management...................................... 8-44

§ 8:2.6 Issuer Use of Social Media for Disclosure ............. 8-44§ 8:3 Drafting the Official Statement .................................... 8-46

§ 8:3.1 Plain-English Considerations ................................. 8-46§ 8:3.2 Drafting Under the TSC Industries

Standard of Materiality............................................ 8-51Figure 8-1 Water Marketing Financing.................................... 8-52Figure 8-2 Resource Recovery Variable-Rate Financing ........... 8-58

§ 8:3.3 Drafting “In Light of the Circumstances”.............. 8-59[A] Drafting in Light of the Audience for

Disclosure ....................................................... 8-59[B] Commercial Paper and Variable-Rate

Demand Obligations ........................................ 8-62[C] Variable-Rate Obligations and Short-Term

Securities Sold to Money Market Funds ......... 8-65


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§ 8:3.4 Drafting Forward Statements in Public Finance .... 8-68[A] Projections and Estimates............................... 8-68[B] Bespeaks-Caution Doctrine ............................ 8-70[C] PSLRA Safe Harbor ......................................... 8-74[D] SEC v. Greater Wenatchee Regional Events

Center Public Facilities District....................... 8-77§ 8:3.5 Drafting Risk Factors ............................................. 8-79

[A] Item 503(c) Risk Disclosure ........................... 8-80[B] The 38 Studios Enforcement Action .............. 8-82[C] Market Risk Factors........................................ 8-85

§ 8:3.6 Drafting Use of Proceeds: A Trap forthe Unwary ............................................................ 8-87[A] Developers Brogdon, Edwards, and Kasirer..... 8-87[B] City of Victorville and City of Harvey ............ 8-90

§ 8:4 Financial Statement Disclosure Issues ......................... 8-92§ 8:4.1 Disclosure Problems Caused by Use of

Aged Financial Statements..................................... 8-92§ 8:4.2 Quantitative Versus Qualitative Materiality:

SAB 99 ................................................................... 8-97§ 8:4.3 Pro Forma Statements ......................................... 8-100§ 8:4.4 Management Discussion and Analysis:

GASB 34 .............................................................. 8-101§ 8:4.5 Auditor Consents and Related Disclosure ........... 8-105§ 8:4.6 Interim Financial Reports .................................... 8-109

§ 8:5 Pension Funding Obligations...................................... 8-111§ 8:5.1 Preliminary Considerations ................................. 8-114§ 8:5.2 The Funded Ratio: A Disclosure Snapshot of

Pension Plan Financial Health............................. 8-117[A] Measuring the Present Value of

Future Pension Liability ................................ 8-119[B] Asset Valuation under GASB Statement

No. 67 and GASB Statement No. 68 ........... 8-123§ 8:5.3 The Pension System, Governance,

Plan Benefits ........................................................ 8-124[A] Plan Structure ............................................... 8-124[B] Governance ................................................... 8-125[C] Pension Benefits............................................ 8-126[D] Legal Protection of Plan Benefits .................. 8-128[D][1] Challenges Based on Constitutional

Contract Impairment Clauses .................. 8-129[D][2] Binding Future Legislatures ...................... 8-132[D][3] Public Necessity ........................................ 8-134[E] Investment Management .............................. 8-136[F] OPEBs and GASB Statement No. 45............ 8-137


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§ 8:5.4 Government Funding of the Normal Cost andAmortization of Unfunded Liability..................... 8-138[A] The Lost ARC............................................... 8-138[B] Task Force Recommendations....................... 8-141[C] Pension Obligation Bonds............................. 8-143

§ 8:5.5 Disclosure Implications of the SECEnforcement Actions Against New Jersey,Illinois, and Kansas.............................................. 8-145[A] New Jersey .................................................... 8-145[B] Illinois........................................................... 8-148[C] Kansas........................................................... 8-150

§ 8:6 Disclosure of Legal Issues Related to theSecurity for Municipal Bonds ..................................... 8-152

§ 8:6.1 Disclosure Issues in the Use of theTerm “Pledge” ...................................................... 8-154

§ 8:6.2 General Obligation Bonds.................................... 8-158[A] What Is Full Faith and Credit? ..................... 8-159[A][1] Specific Items for Disclosure Related to

Full Faith and Credit Bonds...................... 8-161[A][2] Disclosures Based on Constitutional

Law in New York ...................................... 8-162[B] Statutory Liens; Rhode Island....................... 8-166[C] Unlimited-Tax and Limited-Tax General

Obligation Bonds .......................................... 8-168[D] Substantive Issues for Disclosure.................. 8-168[E] Procedural Issues for Disclosure ................... 8-170

§ 8:6.3 Revenue Bonds..................................................... 8-171[A] Pledge of, or Security Interest in, Revenues....8-171[B] Bankruptcy Code .......................................... 8-173[B][1] Right of an Issuer to File a Chapter 9

Petition ..................................................... 8-173[B][2] Special Revenues ....................................... 8-176

§ 8:7 Financial Obligations of the Issuer, IncludingBank Loans and Direct Purchases of MunicipalSecurities from the Issuer ........................................... 8-178

Chapter 9 Continuing Disclosure

§ 9:1 Introduction.................................................................... 9-3§ 9:2 Line Item Disclosure Under the 1933 and

1934 Acts........................................................................ 9-4§ 9:2.1 The Effect of the Sarbanes-Oxley Act on

1934 Act Reporting .................................................. 9-9§ 9:2.2 Proposal for Conduit Borrowers to Be

Reporting Companies............................................. 9-10


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§ 9:3 Continuing Disclosure Duties Under Rule 10b-5 ........ 9-10§ 9:3.1 Materiality ............................................................. 9-10§ 9:3.2 Duty to Correct and Duty to Update;

Forward Statements ............................................... 9-14§ 9:3.3 Standard of Care in the Making of Statements

and Press Releases; Responses to Rumors.............. 9-20§ 9:3.4 Insider Trading and the Issuer ’s Disclosure

Duty....................................................................... 9-24§ 9:3.5 Issuer and Underwriter Disclosure During the

Trading Market ...................................................... 9-26§ 9:3.6 Timing and Method of Secondary Market

Disclosure .............................................................. 9-32§ 9:4 SEC Statutory Authority to Require Periodic

Secondary Market Disclosure in Public Finance........... 9-34§ 9:4.1 1934 Act Limitations on SEC Rules ...................... 9-35

[A] 1934 Act Section 23 ....................................... 9-35[B] Tower Amendment ......................................... 9-37

§ 9:4.2 Statutory Basis for Continuing DisclosureAgreements ............................................................ 9-43

§ 9:4.3 Rule 15c2-12 Continuing DisclosureAgreements and the Antifraud Rules ..................... 9-45

§ 9:4.4 Continuing Disclosure Agreements andthe 1994 Interpretative Release.............................. 9-50

§ 9:5 Drafting, Filing, and Reviewing DocumentsRequired by Continuing Disclosure Agreements .......... 9-53

§ 9:5.1 General .................................................................. 9-53§ 9:5.2 The 2008 Amendments......................................... 9-56§ 9:5.3 The 2010 Amendments......................................... 9-57

[A] Variable-Rate Demand Obligations ................. 9-57[B] Expansion and Changes to Event Notices ...... 9-59

§ 9:5.4 Expansion of EMMA to Receive VoluntaryContinuing Disclosure........................................... 9-61

§ 9:5.5 Selected Topics in Voluntary Postings onEMMA ................................................................... 9-62[A] Bank Loans ..................................................... 9-62[B] Material Events in Addition to the

Rule 15c2-12 Specified Events ........................ 9-66[C] Corrections, Updates, and Remedying

Selective Disclosure ........................................ 9-69[D] Interim Financial Reports ............................... 9-70

§ 9:5.6 The Consequences of an Issuer ’sMisrepresentation of Its Continuing DisclosureUndertakings ......................................................... 9-71[A] SEC Enforcement Power ................................. 9-71[B] City of Harrisburg Enforcement Action.......... 9-72


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§ 9:5.7 The Five-Year Look-Back Rule: Issuers andObligated Persons................................................... 9-73[A] Issuer Misstatements Related to

Its Own Securities .......................................... 9-75[B] Conduit Borrowing Analysis........................... 9-77[C] Key Phrases in the Look-Back Rule................. 9-79[C][1] “A Description of”....................................... 9-79[C][2] “Any Instances”........................................... 9-80[C][3] “In All Material Respects” .......................... 9-82[D] Silence As a Disclosure Strategy ..................... 9-83

§ 9:5.8 The SEC’s MCDC Initiative: Issuers,Obligated Persons, and Underwriters..................... 9-85[A] The Terms of the MCDC Initiative................ 9-85[B] Consequences of Self-Reporting and

Not Self-Reporting .......................................... 9-88[C] Drafting New Continuing Disclosure

Agreements and the Five-Year Look-BackDisclosure ....................................................... 9-90

§ 9:5.9 Underwriters’ Due Diligence onPast Compliance .................................................... 9-91[A] The 2010 Adopting Release Guidance............ 9-91[A][1] Conducting the Review............................... 9-91[A][2] Procedures When Review Shows

Noncompliance........................................... 9-93[B] Issuer or Obligated Person Covenants on

Past Compliance ............................................. 9-96[C] Resolving Disagreements About Past

Compliance Disclosure ................................... 9-96§ 9:5.10 Amending Continuing Disclosure Agreements...... 9-97

§ 9:6 “Secondary Market” Primary Offerings orDistributions: Remarketing Municipal Securities......... 9-98

§ 9:6.1 When Is There a Primary Offering After aNew Issue Closing?................................................ 9-98

§ 9:6.2 Primary or Secondary Distributions andDetermining Whether a Remarketing AgentIs an Underwriter ................................................ 9-104

§ 9:6.3 The Duty of an Issuer to Speak Occasioned bya Remarketing ...................................................... 9-106

§ 9:7 Auction Rate Securities............................................... 9-108§ 9:7.1 Conversions of Auction Rate Securities ............... 9-110

[A] Conversion to New Auction Rate Period ...... 9-110[B] Conversion to Variable-Rate Securities ......... 9-111[C] Conversion to Fixed-Rate Securities ............. 9-112


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§ 9:7.2 Issuer Bidding in Auctions................................... 9-113[A] Required Disclosure ...................................... 9-114[B] The Duty to Speak in a Subsequent Resale....9-118

§ 9:8 Selective Disclosure .................................................... 9-119§ 9:8.1 Regulation FD for Reporting Companies ............. 9-123§ 9:8.2 Selective Disclosure Law Applicable to

Public Finance...................................................... 9-127§ 9:9 Trustees and Trust Indentures .................................... 9-131

§ 9:9.1 Trust Indenture Act of 1939 ................................ 9-133§ 9:9.2 Predefault Disclosure Outside the Trust

Indenture Act of 1939.......................................... 9-137§ 9:9.3 Fair Dealing in Notices of Redemption................ 9-140

VOLUME 2

Table of Chapters ..............................................................................vii

PART IV REGULATED ENTITIES IN PUBLIC FINANCE

Chapter 10 General Issues in the Regulation of MunicipalBroker-Dealers

§ 10:1 Municipal Securities Broker-Dealers............................. 10-3§ 10:1.1 What Is the Reach of the Broker-Dealer

Definition? ............................................................. 10-3§ 10:1.2 The Finder Exemption and Its Limitations ........... 10-7

[A] Placement Agents ........................................... 10-8[B] Third-Party Marketers..................................... 10-9[C] Solicitors ....................................................... 10-11

§ 10:1.3 Municipal Financial Advisors; Revocation ofthe Dominion Resources No-Action Letter.......... 10-12

§ 10:1.4 The Bank Exemptions and Their Limitations ..... 10-15[A] Municipal Securities Dealers ........................ 10-15[B] Municipal Securities Brokers ........................ 10-18[C] The Term “Exempted Securities” As It

Applies to Broker-Dealer RegistrationRequirements ................................................ 10-19

[D] Municipal Securities “Push Out” Rules;Bank Private Placements............................... 10-21

§ 10:1.5 The Analysis of Bank Loans to Municipalitiesand Bank Direct Purchases of MunicipalSecurities.............................................................. 10-25


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[A] Commercial Loan or Investment Security .... 10-26[A][1] Public Finance Examples .......................... 10-26[A][2] The Reves Case: Promissory Notes and

Securities................................................... 10-27[A][3] Loan Participations ................................... 10-31[B] Is the Bank a Dealer?.................................... 10-32[B][1] The General Definition ............................ 10-32[B][2] Bank Exceptions........................................ 10-33[C] Is the Bank a Broker?.................................... 10-35[C][1] Placing Municipal Securities with

a Nonaffiliate ............................................ 10-35[C][2] Placing Municipal Securities with

an Affiliate Broker-Dealer ......................... 10-37§ 10:1.6 Intermediaries in Municipal Securities Lease

Purchase Transactions.......................................... 10-38§ 10:1.7 Electronic Trading Platforms................................ 10-42§ 10:1.8 Can a State or Political Subdivision Issuer, or

Its Officials and Employees, Be InadvertentBroker-Dealers? .................................................... 10-42

§ 10:2 The Regulatory Scheme for Municipal SecuritiesBroker-Dealers ............................................................ 10-47

§ 10:2.1 What Is the Basic Broker-Dealer Obligationto Investors?......................................................... 10-47[A] Special Relationships That Lead to a

Fiduciary Duty .............................................. 10-49[B] Principal-to-Principal Transactions in

Municipal Securities ..................................... 10-52[C] Conceptual Harmonization of Standard of

Conduct; Broker-Dealers, InvestmentAdvisers, and Municipal Advisors................. 10-53

[C][1] SEC Assumptions for a UniformBroker-Dealer and Investment AdviserFiduciary Duty Rule.................................. 10-54

[C][2] Fiduciary Duty: Duty of Loyalty andDuty of Care ............................................. 10-56

§ 10:2.2 Obligations of Broker-Dealers to Persons OtherThan Investors..................................................... 10-57

§ 10:3 The Structure of Municipal Broker-DealerRegulation................................................................... 10-59

§ 10:3.1 The Beginning of Municipal Broker-DealerRegulation: 1975 Amendments tothe 1934 Act ........................................................ 10-59

§ 10:3.2 The Congressional Mandate for Self-Regulationof Municipal Securities Broker-Dealers ................. 10-62


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[A] Self-Regulation in the Over-the-CounterMarkets......................................................... 10-62

[A][1] FINRA....................................................... 10-64[A][2] Clearing Agencies ..................................... 10-66[B] The 1975 Creation of the MSRB.................. 10-67[C] Dodd-Frank Act Expansion of

MSRB Jurisdiction ........................................ 10-69§ 10:3.3 The Critique of Self-Regulatory Organizations

in the Securities Markets ..................................... 10-70[A] Conflicts of Interest ...................................... 10-74[B] Accountability ............................................... 10-76[C] Procedural and Constitutional Safeguards .... 10-80[D] Duplicative Regulation.................................. 10-83

§ 10:3.4 Distinctive Character of MSRB Self-Regulation .... 10-84§ 10:3.5 Relationship Between FINRA and the MSRB ...... 10-86

[A] Rulemaking Jurisdiction................................ 10-86[B] Rulemaking Coordination............................. 10-86[C] Enforcement of MSRB Rules......................... 10-88

§ 10:3.6 Relationship Between the SEC and the MSRB .... 10-89[A] Coordination of Broker-Dealer

Rulemaking................................................... 10-89[B] Illustrations of Overlapping SEC and

MSRB Rulemaking........................................ 10-93[B][1] Recordkeeping Rules ................................. 10-93[B][2] Churning .................................................. 10-98[B][3] Disclosure of Material Information .......... 10-99[B][4] Suitable Recommendations..................... 10-102[C] Distinguishing Statutory Limitations on

MSRB and SEC Rules That Directly orIndirectly Affect Issuers .............................. 10-103

§ 10:4 Primary Market Rules Related to Manipulationand Fraudulent Pricing ............................................. 10-112

§ 10:4.1 Price Manipulation During a Distribution ........ 10-112§ 10:4.2 Bona Fide Public Offering at the Initial

Offering Price ..................................................... 10-116[A] FINRA Rule 5130 ....................................... 10-116[B] Misconduct Associated with a Failure

to Make a Bona Fide Public Offering.......... 10-118[C] Public Finance Practices.............................. 10-120[C][1] The Bond Purchase Agreement............... 10-120[C][2] The Agreement Among Underwriters .... 10-121

§ 10:4.3 SEC v. Edward D. Jones & Co. .......................... 10-122§ 10:4.4 The Use of Spread in Undersubscribed Deals ..... 10-124§ 10:4.5 Fixed-Price Corporate Offerings and

the Papilsky Rules .............................................. 10-132


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§ 10:4.6 Stabilization ....................................................... 10-134§ 10:4.7 Market Making .................................................. 10-140§ 10:4.8 Application of Antitrust Rules ........................... 10-147

[A] Rules of the Self-RegulatoryOrganizations.............................................. 10-147

[B] Broker-Dealer Conduct ............................... 10-153

Chapter 10A MSRB Broker-Dealer Rules

§ 10A:1 Procedures for MSRB Rulemaking ..............................10A-4§ 10A:2 Registration and Qualification Rules ..........................10A-6

§ 10A:2.1 Registration of Municipal Broker-Dealer Firmswith the SEC........................................................10A-6

§ 10A:2.2 Rule G-1, Broker-Dealer RegistrationRequirements for Bank Dealers ...........................10A-9

§ 10A:2.3 Registration of Brokers, Dealers, andMunicipal Securities Dealers with the MSRB....10A-15[A] Consolidated Registration on Form A-12;

Fees ............................................................ 10A-16[B] Initial and Annual Fees ............................. 10A-16[C] Dealer Transaction Fees ............................. 10A-17[D] Municipal Securities Activities and

Municipal Advisory Activities.................... 10A-17[E] Key MSRB Jurisdictional Definitions......... 10A-18[E][1] Broker, Dealer, Municipal Securities

Dealer, and Municipal Advisor .............. 10A-18[E][2] Rule D-8, Bank Dealer........................... 10A-19[E][3] Rule D-11, Associated Person................ 10A-20[E][4] Rule D-12, Municipal Fund Security ..... 10A-21

§ 10A:2.4 Field Examinations of Broker-Dealers andBanks .................................................................10A-23[A] FINRA Priorities Letter .............................. 10A-25[B] MSRB Compliance Advisory...................... 10A-26

§ 10A:2.5 Rule G-2 and Rule G-3, ProfessionalQualifications.....................................................10A-27[A] Municipal Securities Representative,

Series 52, Series 7, and Series 6 Exams..... 10A-28[B] Municipal Securities Principal, Series 53

and Series 51 Exams.................................. 10A-30[C] Municipal Securities Sales Principal,

Series 9/10 Exams...................................... 10A-32§ 10A:2.6 Rule G-3, Continuing Education .......................10A-33§ 10A:2.7 Rule G-4, Statutory Disqualification .................10A-33

§ 10A:3 MSRB Syndicate and Primary Offering Rules...........10A-35


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§ 10A:3.1 Rule G-11, Primary Offerings ............................10A-35[A] The Basics of Syndicate Practices .............. 10A-35[B] Priority Provisions...................................... 10A-39[B][1] Priorities Based on Syndicate

Compensation........................................ 10A-39[B][2] Priorities of Customer and

Retail Orders.......................................... 10A-42[C] Retail Order Period .................................... 10A-43[C][1] Selling Groups and Distribution

Agreements ............................................ 10A-44[C][2] Broker-Dealer Representations and

Disclosures Related to the RetailOrder Period........................................... 10A-45

[D] Restrictions on Underwriters VotingConsents to Amend Documents ............... 10A-47

§ 10A:3.2 Rule G-32, New Issue Disclosure ofUnderwriting Arrangements ..............................10A-48[A] Disclosure of Underwriter Compensation... 10A-49[B] Securities Not Reoffered............................. 10A-51

§ 10A:3.3 Rule G-32, Document Dissemination Rules .....10A-52§ 10A:3.4 Rule G-34, CUSIP Numbers and New Issue

and Market Information Requirements .............10A-53[A] Time of Formal Award and Time of

First Execution........................................... 10A-54[B] Timing for CUSIPs .................................... 10A-56[C] Deadlines for NIIDS Information.............. 10A-58[D] Application for Depository Eligibility ........ 10A-59

§ 10A:4 Uniform Practice Rules.............................................10A-59§ 10A:4.1 Rule G-12, Clearing Agency Settlement ............10A-59

[A] Two-Day (T+2) Settlement Cycle.............. 10A-64[B] Close-Out Procedures ................................ 10A-65

§ 10A:4.2 Rule G-13, Price Quotations..............................10A-66§ 10A:4.3 Rule G-14, Transaction Reporting: Price

Transparency ......................................................10A-71§ 10A:4.4 Rule G-15, Customer Confirmations ................10A-75

[A] Minimum Denominations ........................ 10A-78[B] Forwarding Official Communications ....... 10A-79

§ 10A:4.5 Municipal Fund Securities and UniformPractice Rules .....................................................10A-80

§ 10A:5 MSRB Fair Practice Rules .........................................10A-82§ 10A:5.1 Rule G-17, Fair Dealing Obligations to

Customers and Dealers......................................10A-82[A] Analytics of Rule G-17 .............................. 10A-82[B] Time-of-Trade Disclosure........................... 10A-85


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[B][1] History of MSRB Rule G-17 InterpretiveGuidance.................................................. 10A-85

[B][2] The MSRB’s Rule G-17 RationalizationProject .................................................... 10A-87

[B][3] Rule G-47 on Time-of-Trade DisclosureObligations .............................................. 10A-88

[C] Time-of-Trade Disclosure Obligations toOther Broker-Dealers or InstitutionalInvestors; Sophisticated MunicipalMarket Professionals.................................. 10A-89

[C][1] Interdealer Trades .................................. 10A-89[C][2] Background on Time-of-Trade Disclosure

Obligations to Institutional Investors...... 10A-90[C][3] MSRB Rule D-15 and Rule G-48 on

SMMPs .................................................. 10A-92[D] Electronic Brokerage Systems..................... 10A-93

§ 10A:5.2 Underwriter Rule G-17 Obligations to Issuers....10A-94[A] Disclosure of the Underwriter ’s Role......... 10A-96[B] Disclosures Related to the Underwriter ’s

Compensation............................................ 10A-97[C] Representations to Issuers, Disclosure and

Closing Documents..................................... 10A-98[D] Disclosures Related to the Transaction

and Conflicts of Interest.............................. 10A-99[E] Retail Order Periods................................. 10A-100

§ 10A:6 Customer Relations and Trading Practice Rules .....10A-101§ 10A:6.1 Rule G-18, Best Execution ...............................10A-101

[A] Thin Markets; Procedures........................ 10A-104[B] Broker ’s Brokers....................................... 10A-105[C] Policies and Procedures............................ 10A-106[D] Documentation........................................ 10A-106

§ 10A:6.2 Rule G-19, Suitability ......................................10A-108§ 10A:6.3 Rule G-30, Fair Pricing ....................................10A-111

[A] Fair Pricing in Principal and AgencyTransactions............................................. 10A-112

[B] General Principles.................................... 10A-112[C] Transaction Chains and Thin Markets.... 10A-113

§ 10A:6.4 Markup Disclosure...........................................10A-115[A] The Requirement to Disclose Markups

or Markdowns on Retail CustomerConfirmations.......................................... 10A-115

[B] The Information to Be Disclosed onthe Confirmation..................................... 10A-118

[C] Prevailing Market Price............................ 10A-118


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[C][1] Contemporaneous Cost (Proceeds) .......10A-119[C][2] Overcoming Contemporaneous Cost

(Proceeds) Presumption.........................10A-120[C][3] The Hierarchy of Prices ........................10A-121[C][4] Similar Securities ..................................10A-122[C][5] Economic Models..................................10A-124[D] Timing the Markup or Markdown

Disclosure .................................................10A-125§ 10A:6.5 Municipal Fund Securities: Fair Practice and

Customer Relation Rules .................................10A-125§ 10A:7 Supervision Rules....................................................10A-129

§ 10A:7.1 Defining a Supervisor ......................................10A-131§ 10A:7.2 The Requisites of Supervision..........................10A-134§ 10A:7.3 Rule G-27, Policies and Procedures .................10A-136§ 10A:7.4 Rule G-27, Review of Written and

Electronic Correspondence...............................10A-137§ 10A:8 Market Integrity Rules ............................................10A-138

§ 10A:8.1 Rule G-23, Activities of Broker-DealersActing As Financial Advisors ...........................10A-138

§ 10A:8.2 Rule G-37, Political Contributions ..................10A-141[A] Quid Pro Quo Corruption.........................10A-142[B] The Two-Year Ban .....................................10A-146[B][1] The Ban Resulting from a Contribution

by a Municipal Advisor Third-PartySolicitor ................................................. 10A-150

[B][2] Cross-Bans ............................................10A-152[B][3] Excluded Contributions; Two-Year

Look-Back .............................................10A-153[C] Prohibition on Soliciting and

Coordinating Contributions...................... 10A-155[D] Prohibition on Circumvention of

Rule G-37 .................................................10A-156[E] Required Disclosure to MSRB...................10A-156

§ 10A:8.3 Rule G-20, Gifts and Gratuities ......................10A-157§ 10A:8.4 Rule G-38, Consultants ...................................10A-158§ 10A:8.5 Municipal Fund Securities and Market

Integrity Rules..................................................10A-161

Chapter 11 Municipal Advisor Regulation

§ 11:1 Dodd-Frank Act Jurisdiction over MunicipalAdvisors ........................................................................ 11-4

§ 11:1.1 Regulatory Framework ........................................... 11-4[A] SEC and MSRB Rulemaking Authority........... 11-9[B] Application of the Tower Amendment to

Municipal Advisors ....................................... 11-11


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§ 11:1.2 Nonsolicitor Municipal Advisors: The Importanceof the Term “Advice”; the Advice Standard............ 11-12[A] The General-Information Exclusion ............. 11-14[B] The Tension Between Giving Particularized

Information and Avoiding aRecommendation Under the General-Information Exclusion .................................. 11-15

[B][1] Disclaimers ............................................... 11-17[B][2] Effect of Overall Course of Conduct ......... 11-18[C] Business Promotional Materials Provided by

Potential Underwriters ...................................11-18[C][1] Disclaimers in the Context of Potential

Underwriter Promotional Material ........... 11-21[C][2] Effect of Overall Course of Conduct

in the Context of Potential UnderwriterPromotional Materials .............................. 11-21

§ 11:1.3 Municipal Advisory Activity ................................ 11-22§ 11:2 Key Definitions and SEC Interpretive Guidance ........ 11-23

§ 11:2.1 Municipal Entity and Obligated Person ............... 11-23§ 11:2.2 Treatment of Officials, Board Members, and

Employees of a Municipal Entity or ObligatedPerson As Possible Municipal Advisors ............... 11-26

§ 11:2.3 Issuance of Municipal Securities.......................... 11-28§ 11:2.4 Municipal Financial Products .............................. 11-29

[A] Municipal Derivatives................................... 11-29[B] Guaranteed Investment Contracts................ 11-31[C] Investment Strategies.................................... 11-32

§ 11:2.5 Solicitor Municipal Advisors: Solicitation ofa Municipal Entity or Obligated Person............... 11-34[A] What Type of Communication Is a

Solicitation? .................................................. 11-36[A][1] Advertisements ......................................... 11-36[A][2] Assistance with a Request for Proposals ....11-37[A][3] Endorsements ........................................... 11-38[B] Issues Related to Solicitation on Behalf of

Investment Advisers ..................................... 11-39[B][1] The Jurisdictional Implications of

Solicitation on Behalf of InvestmentAdvisers..................................................... 11-39

[B][2] Solicitation by Investments Advisers ........ 11-41[B][3] Placement Agents Soliciting on Behalf of

Pooled Investment Vehicles ...................... 11-42[B][4] Solicitors Under the Advisers Act ............. 11-43[C] Issues Related to Solicitation on Behalf of

Broker-Dealers: Rule G-38 ............................ 11-43


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[D] Solicitation of an Obligated Person............... 11-44[D][1] Obligated Persons Under the Rule G-37

Definition of Municipal AdvisorThird-Party Solicitors................................ 11-45

[E] Exemption for Certain Solicitors .................. 11-45[F] Standard of Conduct Applicable to Solicitor

Municipal Advisors ....................................... 11-46[F][1] Who Is the Solicitor ’s Client? .................. 11-46[F][2] Fiduciary Duty .......................................... 11-47[F][3] Dual Clients ............................................. 11-47[F][4] Fair Dealing .............................................. 11-49

§ 11:3 The Underwriter Exclusion ........................................ 11-51§ 11:3.1 Broker-Dealer Activities Within or Not Within

the Underwriter Exclusion ................................... 11-52§ 11:3.2 The Relationship of the Underwriter Exclusion

to MSRB Rule G-17 and MSRB Rule G-23 ......... 11-54§ 11:3.3 Persons Engaged in Activities Similar to the

Underwriting of Municipal Securities.................. 11-59[A] Placement Agents ......................................... 11-59[B] Dealers or Agents in Tender Offers or

Exchange Transactions.................................. 11-60[C] Remarketing Agents...................................... 11-60[D] Commercial Paper Dealers............................ 11-62[E] Brokerage Services......................................... 11-62

§ 11:3.4 Time and Method of the Engagement of anUnderwriter.......................................................... 11-63

§ 11:3.5 Post-Issuance Advice ............................................ 11-65[A] Official Statement Corrections ..................... 11-65[B] Continuing Disclosure Filings ...................... 11-66[C] Due Diligence on Rule 15c2-12

Compliance................................................... 11-67§ 11:4 The Registered Investment Adviser Exclusion ........... 11-68§ 11:5 The Registered Commodity Trading Advisor

Exclusion; Exemption for Swap Dealers ..................... 11-71§ 11:6 The Exclusion for an Attorney Providing

Legal Advice ................................................................ 11-73§ 11:6.1 General Information ............................................ 11-73§ 11:6.2 The Type of Advice .............................................. 11-74§ 11:6.3 The Recipient of the Advice................................. 11-75

§ 11:7 The Exclusion for an Engineer ProvidingEngineering Advice ..................................................... 11-75

§ 11:8 The Exemptions ......................................................... 11-76§ 11:8.1 Accountants ......................................................... 11-77§ 11:8.2 Banks ................................................................... 11-77


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§ 11:8.3 Responses to Requests for Proposals orQualifications....................................................... 11-79

§ 11:8.4 Participation by an Independent RegisteredMunicipal Advisor................................................ 11-80

§ 11:9 Registration of Municipal Advisors............................. 11-82§ 11:9.1 Registration with the SEC.................................... 11-82

[A] Form MA ...................................................... 11-82[B] Form MA-I.................................................... 11-84

§ 11:9.2 Registration with MSRB ...................................... 11-85[A] Form A-12 .................................................... 11-85[B] Fees ............................................................... 11-86

§ 11:10 Professional Qualifications ......................................... 11-86§ 11:10.1 Municipal Advisor Representative Examination.... 11-87§ 11:10.2 Municipal Advisor Principal Examination ........... 11-87§ 11:10.3 Municipal Advisor Continuing Education

Requirements ....................................................... 11-88§ 11:11 Rule G-44: Municipal Advisor Supervisory and

Compliance Obligations ............................................. 11-89§ 11:11.1 Purpose of In-House Supervisors and

Compliance Personnel ......................................... 11-89§ 11:11.2 Supervisory System and Procedures..................... 11-91§ 11:11.3 Compliance Processes and Chief Compliance

Officer .................................................................. 11-92§ 11:12 The Fiduciary Duty of Municipal Advisors to

Their Municipal Entity Clients .................................. 11-95§ 11:12.1 The Dodd-Frank Act Standard............................. 11-95§ 11:12.2 Reconciling the Interests of Municipal Entities

and the Interests of Investors .............................. 11-98§ 11:12.3 The Dodd-Frank Act Delegation of Authority

to the MSRB ........................................................ 11-98§ 11:13 The Fair Dealing Obligation of Municipal Advisors .... 11-99

§ 11:13.1 MSRB Rule G-17 ................................................. 11-99§ 11:13.2 First Southwest Cease-and-Desist Order ............. 11-99

§ 11:14 Rule G-42: Core Standards of Conduct forNonsolicitor Municipal Advisors .............................. 11-100

§ 11:14.1 General Standards of Conduct........................... 11-101[A] Duty of Care ............................................... 11-102[B] Duty of Loyalty Owed a Municipal Entity....11-103

§ 11:14.2 Disclosures at Commencement of MunicipalAdvisory Activity................................................ 11-105[A] Inadvertent Advice ...................................... 11-107[B] Consequences of Rendering Inadvertent

Advice ......................................................... 11-108§ 11:14.3 Documentation of Municipal Advisory

Relationship ....................................................... 11-109


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§ 11:14.4 Recommendations.............................................. 11-110§ 11:14.5 Specific Prohibitions .......................................... 11-113§ 11:14.6 Ban on Principal Transactions ........................... 11-114§ 11:14.7 The Fixed-Income Transaction Exception to

the Ban on Principal Transactions ..................... 11-116§ 11:15 Rule G-20: Gifts, Gratuities, and Expenses of

Issuance .................................................................... 11-118§ 11:15.1 General Limitation ............................................ 11-119§ 11:15.2 Exclusions from the $100 Limit ........................ 11-120§ 11:15.3 Prohibition on Use of Offering Proceeds............ 11-121

§ 11:16 Rule G-37: Political Contributions ........................... 11-122§ 11:16.1 The Two-Year Ban .............................................. 11-123

[A] Municipal Advisors Excluding Third-PartySolicitors ..................................................... 11-123

[B] Municipal Advisor Third-Party Solicitors..... 11-125[C] The Effect on Regulated Entity Clients

of a Municipal Advisor Third-PartySolicitor Two-Year Ban ................................ 11-126

[D] Cross-Bans for Dealer–MunicipalAdvisors ...................................................... 11-126

§ 11:16.2 Prohibition on Soliciting and CoordinatingContributions..................................................... 11-127

§ 11:17 Municipal Advisors Subject to Registration AsBroker-Dealers; Placement Agent Activity ................ 11-128

Appendix 11A Section 15B of the 1934 Act Marked toShow Dodd-Frank Act Amendments .......App. 11A–1

Appendix 11B Municipal Advisor Registration/SEC Final Rules........................................App. 11B–1

Appendix 11C SEC Glossary of Terms in MunicipalAdvisor Adopting Release ........................ App. 11C–1

Chapter 12 Investment Adviser Regulation

§ 12:1 The Intersection of Broker-Dealer, InvestmentAdviser, and Municipal Advisor Regulation ................... 12-2

§ 12:2 Overview of the Dodd-Frank Act Changes to theAdvisers Act.................................................................. 12-7

§ 12:2.1 Repeal of Exemption for Private Advisers .............. 12-8§ 12:2.2 New Exemptions.................................................. 12-10

[A] Private Fund Advisers ................................... 12-10[B] Venture Capital Funds .................................. 12-11

§ 12:2.3 Reallocation of SEC-State Authority .................... 12-12§ 12:3 Jurisdictional Treatment of Investment Advisers

and Municipal Advisors Under the 1934 Act andthe Advisers Act.......................................................... 12-14


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§ 12:3.1 Conceptual and Definitional Overlap ofInvestment Advisers and Municipal Advisors...... 12-14

§ 12:3.2 Investment Advisers Who Are Not MunicipalAdvisors; the Investment Adviser Exclusion........ 12-17

§ 12:3.3 Financial Advisors Who Are MunicipalAdvisors but Not Investment Advisers ................ 12-20

§ 12:4 The SEC’s Investment Adviser Pay-to-Play Rule ........ 12-26§ 12:4.1 Investment Advisers Subject to Rule 206(4)-5 ..... 12-28§ 12:4.2 The Two-Year Ban ................................................ 12-29§ 12:4.3 Conditional Ban on Use of Third-Party

Solicitors or Placement Agents to SolicitInvestment Advisory Business ............................. 12-30[A] Incorporation of FINRA and MSRB

Rules on Solicitors ........................................ 12-32[A][1] FINRA....................................................... 12-33[A][2] MSRB........................................................ 12-34[B] State Law Bans: The Nationwide Reform

Code Initiated by New York.......................... 12-35§ 12:4.4 Covered Investment Pools ................................... 12-37§ 12:4.5 In re TL Ventures Inc. .......................................... 12-39

§ 12:5 Restrictions on Cash Payments by InvestmentAdvisers to Solicitors .................................................... 12-41

§ 12:5.1 Status of the Solicitor Under the Advisers Act .... 12-42§ 12:5.2 Status of Solicitor As a Municipal Advisor

Under the 1934 Act ............................................. 12-42§ 12:6 Sorting Out the Differences Among Solicitors,

Placement Agents, and Pension Consultants ............. 12-43§ 12:7 Investment Advisers in Public Finance....................... 12-45

§ 12:7.1 Advisers to Investment Vehicles forMunicipal Securities ...............................................12-45[A] Municipal Bond Funds.................................. 12-46[B] SEC v. Heartland Advisors ............................ 12-47

§ 12:7.2 Advisers to Government Entities ......................... 12-49[A] Public Pension Funds.................................... 12-49[A][1] SEC v. Henry Morris ................................. 12-52[A][2] SEC v. MayfieldGentry Realty Advisors,

LLC ........................................................... 12-54[B] Local Government Investment Pools............ 12-56[C] Is the Pool Itself an Investment Adviser? ..... 12-59[D] Section 529 College Savings Plans................ 12-63

Figure 12-1 Investment Advisers in Section 529College Savings Plans .......................................... 12-64

§ 12:8 Registration Requirements and Exemptions ............... 12-66§ 12:8.1 SEC or State Registration..................................... 12-66


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§ 12:8.2 Form ADV ........................................................... 12-68[A] Form ADV, Part I .......................................... 12-68[B] Form ADV, Part 2.......................................... 12-69[C] Updates......................................................... 12-70

§ 12:8.3 Exclusions and Exemptions ................................. 12-70[A] Lawyers ......................................................... 12-71[B] Broker-Dealers............................................... 12-72[C] Vendors of Information on Municipal

Securities....................................................... 12-73[D] Advisers of Investment in Government

Securities....................................................... 12-75§ 12:9 Fiduciary Duties of Investment Advisers.................... 12-76

§ 12:9.1 Duty of Loyalty: Disclosing Conflicts ofInterest................................................................. 12-79[A] Adviser Fees: Performance, Fulcrum,

and Wrap Account Fees................................. 12-79[B] In re O’Brien Partners ................................... 12-82[C] Trading Practices: Allocation, Principal

Transactions, Agency Cross Transactions,Personal Trading ........................................... 12-83

[D] Reciprocal Arrangements: Soft DollarTransactions.................................................. 12-88

§ 12:9.2 Duty of Care ........................................................ 12-92

Chapter 13 Developments in the Municipal SecuritiesMarketplace

§ 13:1 The Implementation of National Market Systems ........ 13-2§ 13:1.1 The Over-the-Counter Municipal Quotation

Market ................................................................... 13-2§ 13:1.2 Congressional Policy for National Market

Systems .................................................................. 13-4§ 13:1.3 Development of a National Municipal

Securities Market ................................................... 13-6[A] National Electronic Clearance and

Settlement....................................................... 13-8[B] Online Information and Price

Transparency................................................. 13-10[C] Electronic Trading Centers As Liquidity

Providers ....................................................... 13-10§ 13:1.4 Persistent Problems of Transparency and

Liquidity in the Municipal Market ...................... 13-11§ 13:2 Internet Platforms for Secondary Market Trading ...... 13-12


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§ 13:2.1 Issuer Initiatives to Promote Liquidity byEstablishing Issuer Bulletin Boards ...................... 13-12[A] The Exemption from Broker-Dealer

Regulation for Issuers of MunicipalSecurities....................................................... 13-16

[B] Effects of Disintermediation ......................... 13-17§ 13:2.2 Development of Alternate Trading System

Regulation ............................................................ 13-20[A] A Proprietary Trading System ....................... 13-23[B] From Proprietary to Alternate Trading

Systems ....................................................13-26[C] Definition of an “Exchange” ......................... 13-30[D] Regulation ATS ............................................. 13-35

§ 13:2.3 Online Brokerage Services and Alternate TradingSystems; Compliance with MSRB Rules ............... 13-40[A] Customer Confirmations and Other

Uniform Practice Rules................................. 13-41[B] Suitability...................................................... 13-44[C] Time-of-Trade Disclosure.............................. 13-49[D] Quotations .................................................... 13-51[E] Fair Pricing.................................................... 13-55

§ 13:3 Broker ’s Brokers.......................................................... 13-57§ 13:3.1 Definition of a Broker ’s Broker............................ 13-57§ 13:3.2 “Offerings” and “Bid-Wanteds”............................. 13-58§ 13:3.3 SEC and FINRA Enforcement Actions Against

Broker ’s Brokers for Unlawfully ConductingBid-Wanted Auctions............................................ 13-60

§ 13:3.4 Rule G-43; MSRB Regulation of theConduct of Broker ’s Brokers ................................ 13-61[A] Background ................................................... 13-61[B] The General Duty of a Broker ’s Broker and

the Rule G-43 Safe Harbor .............................13-62[C] Policies and Procedures................................. 13-63[D] Rule G-43 Exception for Certain Alternative

Trading Systems .............................................13-65§ 13:3.5 MSRB Guidance on the Conduct of

Sellers and Bidders Using the Services ofa Broker ’s Broker ................................................. 13-66[A] Rule G-13; Quotation Rules Affecting

Bidders .......................................................... 13-67[B] Rule G-30; Fair Pricing Obligations of

Broker-Dealers Using the Services ofa Broker ’s Broker .......................................... 13-68


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PART V PUBLIC FINANCE LITIGATION AND ENFORCEMENT

Chapter 14 Fraud Concepts in Public Finance

§ 14:1 Introduction to Fraud Concepts in Public Finance....... 14-3§ 14:1.1 Antifraud Rules: The Centerpiece of

Public Finance Securities Regulation ..................... 14-3[A] The Bias in Antifraud Rules Against

Private Actions and Favoring SECEnforcement in Public Finance ....................... 14-6

[B] Supreme Court Decisions FavoringSEC Enforcement............................................ 14-9

§ 14:1.2 Antifraud Rules in State Blue Sky Laws:The Extent of Federal Preemption ....................... 14-14

§ 14:2 Antifraud Rules in Tender Offers for MunicipalSecurities .................................................................... 14-22

§ 14:2.1 Application of SEC Tender Offer Rules toMunicipal Securities ............................................ 14-24

§ 14:2.2 The Meaning of a Tender Offer ........................... 14-27§ 14:2.3 Fraud in Tender Offers ......................................... 14-30§ 14:2.4 MSRB Fair Dealing Rules Applicable to

Municipal Tender Offers ...................................... 14-31§ 14:2.5 Drafting Tender Offer Disclosure......................... 14-33

§ 14:3 Antifraud Jurisdiction: The Reach of Rule 10b-5 ....... 14-35§ 14:3.1 Standing: Purchaser-Seller Requirement .............. 14-35

[A] Birnbaum Rule and Oral Contracts .............. 14-35[B] Municipal Bond Insurers As Purchasers

or Sellers: The FSA and MBIA Cases ............ 14-39[C] Indenture Trustee’s Capacity to Act for

Purchasers and Sellers of Municipal Bonds.....14-44§ 14:3.2 The Range of Potential Defendants ..................... 14-47

[A] “In Connection with” As a DeterminingFactor ............................................................ 14-47

[B] Aiders and Abettors; Primary andSecondary Actors: From Central Bank toEnron ............................................................ 14-54

[C] Secondary Actors with Primary LiabilityAfter Stoneridge ............................................ 14-61

[D] Bond Counsel As a Primary Actor AfterStoneridge ..................................................... 14-65

[E] Aider and Abettor Liability UnderState Law ...................................................... 14-71

§ 14:3.3 Antifraud Jurisdiction over Swap Transactions .... 14-74[A] Security-Based Swap Agreements.................. 14-74

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[B] Swap Agreements Entered into “inConnection with” the Sale of MunicipalSecurities....................................................... 14-78

§ 14:4 Materiality .................................................................. 14-79§ 14:4.1 Cases in Which the Materiality Element

Is Not Applicable ................................................. 14-79§ 14:4.2 The TSC Standard ............................................... 14-82§ 14:4.3 What Is the “Total Mix” of Information? ............ 14-85

§ 14:5 Scienter ....................................................................... 14-89§ 14:5.1 Required Mental State for Scienter ...................... 14-89§ 14:5.2 Pleading a Strong Inference After PSLRA ............ 14-96§ 14:5.3 Pleading Competing Inferences After Tellabs....... 14-98

§ 14:6 Reliance .................................................................... 14-103§ 14:6.1 Transaction Causation and Loss Causation

Distinguished..................................................... 14-103§ 14:6.2 Presumptions of Reliance................................... 14-105

[A] Material Omissions .................................... 14-107[B] Misstatements in an Efficient Market ........ 14-110[C] Misstatements in the Public Finance

Market ........................................................ 14-114[D] The Theory That Fraud Created the

Market ........................................................ 14-116§ 14:7 Loss Causation ......................................................... 14-123

§ 14:7.1 Common Law and PSLRA................................. 14-123§ 14:7.2 Loss Causation After Dura Pharmaceuticals ..... 14-124

[A] Fraud-on-the-Market Theory ...................... 14-125[B] Materialization-of-Risk Standard ................ 14-126

§ 14:8 Disclosure Fraud: The Issuer ’s Duty to ProvideDisclosure ................................................................. 14-127

§ 14:8.1 Active and Passive Issuers.................................. 14-130§ 14:9 Transaction Fraud: Redemptions and Escrow

Restructurings........................................................... 14-138§ 14:9.1 The Institutional Investors’ Obligations............ 14-150

§ 14:10 Concealment Fraud: Insider Trading ........................ 14-157§ 14:11 Fiduciary Fraud; Market Integrity............................. 14-161

§ 14:11.1 The Public Finance Participants ........................ 14-163§ 14:11.2 Duty to Speak in a Nondisclosure Case ............ 14-168§ 14:11.3 Determining Whether a Participant Is a

Fiduciary ............................................................ 14-172[A] Property Theory .......................................... 14-173[B] Reliance Theory .......................................... 14-175[C] Contract Theory ......................................... 14-175[D] Transfer of Encumbered Power Theory....... 14-178

§ 14:11.4 Government Officials As Fiduciaries ................. 14-179

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§ 14:11.5 Underwriters of Municipal Securities ................ 14-182[A] United States v. Cochran: Cochran 1 ......... 14-184[B] SEC v. Cochran: Cochran 2 ........................ 14-186[C] SEC v. Terry D. Busbee &

Preston C. Bynum....................................... 14-188§ 14:11.6 Brokers and Dealers ........................................... 14-190§ 14:11.7 Half-Truths and Misleading Nondisclosures ...... 14-194§ 14:11.8 Nonfiduciary Obligations Among Participants .... 14-197

§ 14:12 Markup Fraud: Yield Burning ................................... 14-199§ 14:12.1 The Fair Market Value Rule Under the

Arbitrage Regulations ......................................... 14-203§ 14:12.2 Misrepresentations in Fair Market Value

Certificates ......................................................... 14-205§ 14:12.3 The Dealer ’s Duty to Disclose Markups ........... 14-209

[A] Excessive Markups...................................... 14-209[B] Fiduciary Relationship ................................ 14-214[C] Global Resolution ....................................... 14-217

Chapter 15 SEC Enforcement Powers and CriminalViolations

§ 15:1 SEC Division of Enforcement....................................... 15-2§ 15:2 SEC Enforcement Powers Against States and

Political Subdivisions .................................................... 15-6§ 15:3 SEC Enforcement Powers Against Public Officials....... 15-10

§ 15:3.1 Executive Branch.................................................. 15-10§ 15:3.2 Legislative Branch ................................................ 15-10§ 15:3.3 Reliance on Advisors............................................ 15-14§ 15:3.4 Immunity of Public Officials ............................... 15-17

§ 15:4 New SEC Enforcement Powers Under theDodd-Frank Act .......................................................... 15-20

§ 15:4.1 Aiders and Abettors ............................................. 15-20§ 15:4.2 Market Manipulation........................................... 15-21§ 15:4.3 New Monetary Penalties in Cease-and-Desist

Proceedings .......................................................... 15-22§ 15:4.4 Whistleblower Incentives ..................................... 15-23

§ 15:5 Informal and Formal Investigations ........................... 15-25§ 15:5.1 In General............................................................ 15-25§ 15:5.2 Wells Submissions ............................................... 15-28§ 15:5.3 Staff Enforcement Recommendations .................. 15-30

§ 15:6 Section 21(a) Reports of Investigations....................... 15-31§ 15:6.1 The Importance of Section 21(a) Reports in

Public Finance...................................................... 15-31§ 15:6.2 Controversial and Timely Legal Issues ................ 15-33

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§ 15:6.3 The Section 21(a) Seaboard Report Initiative toFoster Cooperation............................................... 15-34

§ 15:7 Municipal Entity Policies, Procedures, and InternalControls Responsive to SEC Initiatives to FosterCooperation ................................................................ 15-36

§ 15:8 SEC Enforcement Actions .......................................... 15-37§ 15:8.1 Disciplinary Actions Against Regulated Entities,

Including Municipal Advisors .............................. 15-37§ 15:8.2 The Importance of Cease-and-Desist Orders in

Public Finance...................................................... 15-40[A] Cease-and-Desist Orders to Improve Issuer

Disclosure: Pension Fund Liability ............... 15-44[B] Cease-and-Desist Orders to Improve

Market Integrity: Bid Rigging........................ 15-46§ 15:8.3 The SEC’s Choice to Seek an Injunction or a

Cease-and-Desist Order ....................................... 15-48[A] Features of an Injunctive Action................... 15-49[B] Factors Influencing the Choice Between an

Injunctive Action and a Cease-and-DesistProceeding..................................................... 15-50

[C] Purchase or Sale of Securities in MarketIntegrity Enforcement Actions ...................... 15-53

[D] Use of an Injunction and a Cease-and-DesistOrder for Different Parties in the SameCase: Jefferson County, Alabama.................. 15-66

[E] Monetary and Equitable Remedies inEnforcement Actions..................................... 15-69

§ 15:9 Criminal Referrals to the Justice Department andParallel Proceedings..................................................... 15-73

§ 15:9.1 Criminal Conduct Under Securities Laws ........... 15-74§ 15:9.2 Willful Violation of MSRB Rules ......................... 15-76§ 15:9.3 Civil and Criminal Contempt ............................. 15-78

§ 15:10 Other Criminal Statutes Applicable in PublicFinance Securities Transactions.................................. 15-78

§ 15:10.1 Conspiracy ........................................................... 15-79[A] Jefferson County, Alabama ........................... 15-80[B] Antitrust Conspiracy in Nationwide

Bid-Rigging Probe.......................................... 15-82§ 15:10.2 Mail Fraud and Wire Fraud, § 1341

and § 1343........................................................... 15-83[A] Intangible Right to Honest Services,

§ 1346........................................................... 15-87[A][1] Public Sector Cases ................................... 15-92[A][2] Private Sector Cases.................................. 15-93

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[B] Skilling v. United States ................................ 15-95[B][1] Public Sector Cases in Light of Skilling:

Jefferson County ....................................... 15-96[B][2] Private Sector Cases in Light of Skilling:

GIC Brokers and Providers; Underwritersand Municipal Advisors.............................. 15-98

§ 15:10.3 Money Laundering ............................................. 15-101§ 15:10.4 Bribery and Extortion......................................... 15-101

[A] Quid Pro Quo ............................................. 15-107[B] Under Color of Official Right ..................... 15-110[C] Philadelphia ................................................ 15-113

Chapter 16 The Sovereign Immunity Defense

§ 16:1 Introduction to Sovereign Immunity Issuesin the Securities Law of Public Finance........................ 16-2

§ 16:1.1 Rule 10b-5 Civil Actions Against States ................ 16-3§ 16:1.2 Sources of the Conventional View of

State Sovereign Immunity...................................... 16-7§ 16:1.3 A Public Policy Case for the Conventional

View When Applied to the Issuance ofMunicipal Securities by States ............................. 16-10

§ 16:2 Federal Court Diversity and Subject MatterJurisdiction ................................................................. 16-12

§ 16:2.1 Sovereign Immunity as a Limitation onJudicial Power ...................................................... 16-12[A] The Eleventh Amendment and Diversity

Jurisdiction.................................................... 16-13[B] The Nineteenth-Century Contract Clause

Bondholder Litigation ................................... 16-16§ 16:2.2 Congressional Power to Abrogate

Sovereign Immunity............................................. 16-19[A] Article I, Section 8 Commerce Clause

Power Before 1996 ........................................ 16-19[B] Article I, Section 8 Commerce Clause

Power After 1996 .......................................... 16-22[C] Article I, Section 8 Bankruptcy Clause

Power ............................................................ 16-25[D] Fourteenth Amendment, Section 5 Power .....16-27

§ 16:2.3 State Consent to Waive Sovereign Immunity ...... 16-33[A] Constructive Waiver by Activity ................... 16-33[B] Plan-of-Constitution Waiver ......................... 16-38

§ 16:2.4 Application of Cases to State Issues ofSecurities.............................................................. 16-39

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§ 16:2.5 Appellate Jurisdiction: Forum Shifting................. 16-42§ 16:2.6 SEC Administrative Actions ................................ 16-47§ 16:2.7 State Court Actions ............................................. 16-49

§ 16:3 Separating the Public Body of the State fromPrivate/Public Officials of the State ............................ 16-50

§ 16:3.1 Historical Background.......................................... 16-50§ 16:3.2 Suits against Public Officials; Ex Parte

Young Prospective Relief....................................... 16-57§ 16:3.3 Immunity of Public Officials: The Business

Judgment Rule in Public Finance......................... 16-60§ 16:3.4 Controlling Persons ............................................. 16-69

§ 16:4 Separating the State from Non-SovereignPolitical Subdivisions .................................................. 16-73

§ 16:4.1 The Body Politic and Corporate........................... 16-74§ 16:4.2 State Authorities .................................................. 16-76§ 16:4.3 Interstate Compacts............................................. 16-81§ 16:4.4 Public Universities and Hospitals ........................ 16-84

§ 16:5 Indian Tribal Governments ........................................ 16-87

Table of Authorities .........................................................................T-1

Index.................................................................................................. I-1

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