While municipal securities are exempt from registration and reporting requirements of the federal securities laws, they are subject to the antifraud provisions. It is a violation of these antifraud provisions for any person--including municipal issuers and underwriters--to make false or misleading statements of material fact or omit any material fact causing such statements to be misleading.
The official statement for a securities offering is the issuer’s document and as such, the issuer has responsibilities under the federal securities laws for its content, regardless of who prepares it. Others participating in the preparation of an official statement for either a competitive or negotiated sale--such as underwriters, attorneys, and financial advisors-- also have legal responsibilities under the federal securities laws.
The inclusion of underwriter disclaimer language is referenced by the Securities and Exchange Commission (SEC) in footnote 103 of its 1994 Interpretive Release on disclosure obligations of governmental issuers and other municipal market participants. It states that, “In light of the underwriter’s obligation…to review the official statement and to have a reasonable basis for its belief in the accuracy and completeness of the official statement’s key representations, disclaimers by underwriters of responsibility for the information provided by the issuer or other parties, without further clarification regarding the underwriter’s belief as to accuracy, and the basis therefore, are misleading and should not be included in official statements.”
Disclaimer language has been suggested by underwriters, including the assertion that the underwriters do not guarantee the accuracy or completeness of the official statement. However, the Government Finance Officers Association (GFOA) believes such language is inappropriate.
GFOA believes inclusion of an underwriter disclaimer creates more concerns about obligations under the securities laws than it resolves, and could consequently increase the risk of confusing investors.
GFOA recommends that issuers not include underwriter disclaimer language in official statements. GFOA further recommends that in the preparation of official statements, issuers should undertake an affirmative review to ensure that any such disclaimer language has not been included.
Recommended Uniform Disclosure Practice for Municipal Official Statement, The Securities Industries and Financial Markets Association.