SEC Reaches Settlement With Pennsylvania City Over Federal Securities Law Violations

WASHINGTON, D.C. - (Mealey's) The Securities and Exchange Commission and the City of Harrisburg, Pa., have agreed to a cease-and-desist order preventing the city from continuing its violation of federal securities laws in connection with statements it made both publicly and in financial documents regarding the city's failure to comply "with written undertakings executed by the City in the form of Continuing Disclosure Certificates," the SEC said in its order, filed May 6 (In the Matter of the City of Harrisburg, Pennsylvania, No. 3-15316, SEC).

(Cease-and-desist order available. Document #57-130513-073R.)


The SEC alleges that the city violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 by issuing the false and misleading statements in the continuing disclosure certificates.

"[The written] undertakings were a prerequisite to the underwriting of primary offerings of municipal securities subject to Rule 15c2-12 of the Exchange Act. Pursuant to the Continuing Disclosure Certificates, the City agreed to provide certain ongoing financial information and notices for the benefit of bondholders. Harrisburg is a near-bankrupt city under state receivership largely by virtue of approximately $260 million in outstanding debt it guaranteed for upgrades and repairs to a municipal Resource Recovery Facility ('RRF'), owned by The Harrisburg Authority. As of March 15, 2013, Harrisburg has found it necessary, on three occasions, to withhold approximately $13.9 million in general obligation debt service payments in order to have sufficient cash flow to meet essential services in the City," the SEC said.

Terms Of The Order

Under the terms of the order, the city has undertaken a number of steps to enhance its disclosure process, including "instituting formal written policies and procedures with respect to public statements regarding financial information made by the City and its compliance with its Continuing Disclosure Certificates."

"In addition, Harrisburg has implemented annual training for City employees involved in the disclosure process to ensure compliance with the Disclosure Policy and to provide an overview of the City's obligations under the federal securities laws. This annual training will be conducted by the City's Business Administrator. City employees receiving the training will provide written certification that they have completed the training and have reviewed, understood and will comply with the Disclosure Policy. No later than 14 days after the end of each fiscal year, the Business Administrator must certify that he has conducted the annual training," the SEC stated.

"Harrisburg has also committed to submitting a copy of its Disclosure Policy, together with any amendments, on EMMA [the Electronic Municipal Market Access] and placing it on the City's public website. In addition, any securities offering for which the City is an issuer or obligated person will now also include a certification by the Business Administrator that the information set forth therein regarding the City does not contain any untrue statement of material fact or omit to state any material fact necessary to make the information contained in the offering document not misleading. Finally, Harrisburg has agreed to disclose the terms of this Order on EMMA and in the preliminary and final offering documents of any future securities offerings for which the City is an issuer or obligated person within five years from the date of this Order."

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