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Need for Guidance on Federal Securities Law Matters

Background
Under the principles of the antifraud provisions of the federal securities laws, it is important for state and local governments and their officials when providing information to the municipal bond market (1) not to make false or misleading statements of material facts and (2) not to omit any material facts that could cause the statements being made to be misleading. Enforcement of the federal securities laws is an important function of the Securities and Exchange Commission (SEC), which provides investor protection and ensures the integrity of the municipal securities market.

The Government Finance Officers Association (GFOA) recognizes that enforcement actions are an effective means to focus attention on compliance with the federal securities laws, as well as to protect state and local governments from fraud committed against them by other market participants. However, the recent enforcement actions of the SEC have raised legitimate concerns among many issuers as to the standards applicable to public officials in securities law enforcement, standards that by and large have been developed in the very different context of private corporations selling stocks and corporate bonds.

GFOA Position
GFOA urges the SEC to recognize and acknowledge the unique status and special characteristics of state and local government bodies and their officials, to provide appropriate guidance to conscientious public officials and to work with GFOA and other industry groups in promoting statements of good practice that will provide practical guidance to state and local officials.

In particular, GFOA believes that the application of the antifraud provisions should recognize that any legal standard for reckless behavior must reflect the special characteristics of state and local governments generally, the nature of the political process and political speech, and the vast distinctions among such governments in terms of organization, resources and access to information and expertise. Public officials exercising ordinary care should be able to carry out their duties without fear that they will be held liable for misstatements and omissions where reasonable reliance on experts is consistent with both sound public policy and the general principles of the securities laws.

GFOA applauds the SEC's recent outreach and educational efforts with municipal market participants, but it urges the Commission to do more to promote a clear understanding among public officials of their responsibilities and to help them recognize areas where governmental and individual liability can arise. GFOA appreciates that no statement of standards can ever give precise guidance of required behavior in every circumstance, but it believes the Commission can do more to provide meaningful guidance to issuers and their officials. GFOA urges the SEC to enter into a process of continuing dialogue with market participants to promote both better disclosure and the development of reasonable practices and standards of care that will provide practical guidance to government officials, especially on the question of reasonable reliance upon finance professionals and others.

Adopted: May 21, 1996