The Many Ways That Cities Cook Their Bond Books

The $3 trillion municipal debt market is rife with creative accounting.

By STEVE MALANGA

It has been a busy few weeks for the Securities and Exchange Commission. In May, the SEC charged two cities—Harrisburg, Pa., and South Miami, Fla.—with securities fraud for allegedly deceiving investors in their municipal bonds.

This follows similar fraud charges against states, New Jersey in 2010 and Illinois in March, after SEC investigators uncovered what they called "material omissions" and "false statements" in bond documents related to those state's pension funds.

With Harrisburg, however, the SEC has gone further and charged the city government with "securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to municipal bond investors was either incomplete or outdated." The SEC says this is the first time the regulator has "charged a municipality for misleading statements made outside of its securities disclosure documents."

The Harrisburg charges are part of a broader SEC effort to scrutinize state and local government issuers in the nation's $3 trillion municipal-bond market. "Anyone who follows municipal finance knows that budgets can sometimes be a work of fiction," says Anthony Figliola, a vice president at Empire Government Strategies, a Long Island-based consulting firm to local governments. "Harrisburg is the tip of the iceberg."

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Under these circumstances muni-bond investors should be practicing a stronger form of "buyer beware."

http://online.wsj.com/article/SB10001424...Opinion_LEADTop

Thanks for posting.

This is a great example of what happens when you remove ethics from economic decisions.

Quote: algernonpj wrote in post #2

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Thanks for posting.

This is a great example of what happens when you remove ethics from economic decisions.

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Quote: FP123 wrote in post #3

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Quote: algernonpj wrote in post #2

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Thanks for posting.

This is a great example of what happens when you remove ethics from economic decisions.

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What is this "ethics" of which you speak?

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