SEC v. Harrisburg: Full-Text Order And 21a Report

Given this potential for liability, public officials who make public statements concerning the municipal issuer should consider taking steps to reduce the risk of misleading investors. At a minimum, they should consider adopting policies and procedures that are reasonably designed to result in accurate, timely, and complete public disclosures; identifying those persons involved in the disclosure process; evaluating other public disclosures that the municipal securities issuer has made, including financial information and other statements, prior to public dissemination; and assuring that responsible individuals receive adequate training about their obligations under the federal securities laws. Public officials may also look to Commission enforcement actions or Commission guidance in developing the disclosure policies, procedures and controls that they choose to establish. Public officials may choose to identify and implement other practices or procedures that they believe are appropriate to meet their obligations under the federal securities laws. Harrisburg has since instituted formal and tailored written policies and procedures with respect to public statements regarding financial information and other statements and its written undertakings pursuant to Rule 15c2-12 of the Exchange Act.

20. On November 25, 2008, the Harrisburg administration submitted a proposed 2009 Budget to City Council, which was approved on December 22, 2008 ("2009 Budget"). The 2009 Budget included $63 million of general fund expenditures. At the time, Harrisburg's 2009 Budget and its accompanying transmittal letter were accessible on Harrisburg's website. By the time the 2009 Budget was passed, Harrisburg was aware of the Authority's projected budget deficits and that Dauphin County was challenging the rate increase. As a result, the Authority was unlikely tohave sufficient revenues to pay its 2009 debt service obligations. Harrisburg's 2009 Budget, as adopted, did not include funds for debt guarantee payments for the RRF, raising questions as to whether it would fulfill its obligations under those guarantees. Nevertheless, at the beginning of the year, Harrisburg administration officials informally set aside $2.1 million of its surplus reserves in anticipation of potentially having to make those guarantee payments.9

21. The 2009 Budget also misstated Harrisburg's credit as being rated "Aaa"by Moody's based upon its insurance. By December 2008, Moody's had announced its downgrade of Harrisburg's general obligation credit rating to Baa1. 

22. On April 9, 2009, Harrisburg's Mayor at the time gave the annual State of the City Address ("2009 Address"). At the time, the 2009 Address was accessible on Harrisburg's website and styled as an "annual report on the progress of Pennsylvania's Capital City and the largest municipality in our region." In the 2009 Address, the former Mayor only discussed the RRF as a situation that was an "additional challenge" and an "issue that can be resolved." The 2009 addresswas misleading because it omitted to state the amount of RRF debt the City would likely have to repay from its General Fund, and the impact that repayment obligation was already having on Harrisburg's finances. By April 2009, Harrisburg had already made $1.8 million in guarantee payments on the RRF debt. In addition, by this time, Harrisburg knew that the Authority had failed to secure the requested rate increase, making it likely that Harrisburg would have to repay $260 million of RRF debt as guarantor.

23. Between December 2008, when Harrisburg's 2009 Budget was made public, and April 2009, when Harrisburg's Mayor made his 2009 Address, $28 million of bonds issued or guaranteed by Harrisburg traded without investors having the benefit of material information regarding Harrisburg's financial condition.

• SEC
• Harrisburg
• 21(a)
• Bill Singer
• BrokeAndBroker