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Former SEC Head Levitt Urges Greater Muni Disclosure

In Uncategorized on September 4, 2008 at 2:13 pm

Because I know so many of you buy Tax Free Bonds and our “Leafy” Village issues them from time to time …..

Former SEC Head Levitt Urges Greater Muni Disclosure (Update1)

By Jeremy R. Cooke

Sept. 3 (Bloomberg) — The U.S. municipal bond market needs greater Securities and Exchange Commission oversight to address a “pretty outrageous” lack of disclosure, according to Arthur Levitt Jr., a former head of the SEC.

More than half of long-term municipal bonds issued between 1996 and 2005 were delinquent in filing continuing financial disclosure documents for at least one year, based on a study released yesterday by Fort Lee, New Jersey-based DPC Data. The company is one of four repositories for such filings.

“We have a real breakdown in the system of overseeing a vital market for America’s investors,” Levitt, senior adviser to the Carlyle Group, said in a Bloomberg Radio interview today. “There are absolutely no consequences for not filing.”

Current SEC Chairman Christopher Cox has said improving municipal market disclosure is a priority. The so-called Tower Amendment limits the commission’s ability to regulate a market where tens of thousands of U.S. state and local government borrowers have $2.66 trillion in debt outstanding. The 1975 federal law prohibits the SEC and the Municipal Securities Rulemaking Board, created that year, from requiring issuers to file with them before selling bonds.

U.S. Representative Barney Frank also said the House Financial Services Committee that he chairs would hold hearings on disclosure this month.

Introducing Emma

The MSRB is developing a single centralized repository, called Electronic Municipal Market Access, or Emma, to accept regular filings from issuers by early next year.

“The current method for collection and dissemination of continuing disclosure documents depends on issuer submissions to multiple entities, which the SEC has noted is not the best means of meeting the market’s need for a comprehensive database of disclosure documents,” Frank Chin, MSRB chairman, said in an e- mailed statement.

The single system “will improve disclosure performance by issuers by reducing the administrative burden they face with multiple entities,” said Chin, who also directs the public finance group at New York-based Citigroup Inc.

Levitt also called for boosting states’ and municipalities’ disclosure of derivative bets with banks and other financial institutions, often used as part of a financing strategy to protect against interest-rate movement. Derivatives are contracts whose value is derived from tradeable securities, or linked to future changes in lending costs.

`What Can Be Lost’

“Municipalities are using derivatives and not disclosing to investors exactly what can be made or what can be lost from the use of those derivatives,” said Levitt, who led a 2006 investigation that found the city of San Diego failed to disclose a $1.4 billion pension fund shortfall to investors.

“The two obvious fixes have got to be to put the municipal bond market under SEC jurisdiction, taking it away from the prohibitions of the Tower Amendment, and giving greater disclosure of these derivatives,” Levitt said.

Levitt, who was SEC chairman from July 1993 to February 2001, sits on the board of Bloomberg LP, parent company of Bloomberg News.

To contact the reporter on this story: Jeremy R. Cooke in New York at jcooke8@bloomberg.net.

Last Updated: September 3, 2008 15:12 EDT

James J Foytlin
Horwitz & Associates
54 Washington Place
Ridgewood NJ 07450
toll free 1(866)492-3959
phone 1(201)301-2780
cell 1(201)966-7788

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