mead cohen berger shevtsova garfinkle michta grygiel blankenhorn
SEC to Struggling Cities: Watch What You Say


Officials and politicians in cash-strapped cities need to start being careful what they say. Two months after the SEC slapped Illinois with fraud charges for making misleading statements about its finances, it is doing the same to Harrisburg, Pennsylvania, which has been fighting bankruptcy after racking up $350 million debts to fix an incinerator.

The SEC is taking issue specifically with statements made in the Mayor’s State of the City address and in the city budget report that allegedly understated the extent of the city’s financial difficulties and sent misleading signals to bond investors. The city managed to settle the charges without paying a fine, but the SEC is sending a message to other municipal leaders.

What differentiates this SEC crackdown from past ones is that some of the scrutinized comments were made in public addresses rather than just official documents directly relating to the bond markets. The Wall Street Journal reports:

The SEC also took issue with Harrisburg officials for doing what many public officials often do: Putting a good face on a difficult situation. For example, in the state of the city address in 2009, Harrisburg’s then-mayor described the incinerator as an “additional challenge” and an “issue that can be resolved.” In its order on Monday, the SEC called the address misleading because it didn’t go into detail about the impact the incinerator debt was having on the city’s finances. […]

But with the Harrisburg case, the SEC is going even further by policing the accuracy of speeches and presentations of government officials. “Public officials should take steps to avoid misleading investors,” Ms. Greenberg said.

This is bad news for the many other cities struggling with bankruptcy. In order to convince investors to buy your city’s bonds, you have to project confidence and an aura of command. If pols have to watch their words even in public speeches, they’re going to find it even harder to make this pitch in private.

[Harrisburg image courtesy of Shutterstock]

Features Icon
show comments
  • bobby_b

    The SEC thinks it’s going to be suing politicians for telling untruths in speeches?
    They’re gonna need a bigger boat.

    • foobarista


  • Douglas Levene

    The cost projections presented by the Administration in support of Obamacare would, if they had been published in a prospectus for a public securities offering, have resulted in fraud charges by the SEC. Projections can be the subject of fraud claims when they are based on assumptions that are known to be unreliable or false and the assumptions underlying those projections were both. Since the US Treasury was in the market selling securities at the time those projections were made public, is the SEC now going to go after the US Government for securities fraud? I think that criminalizing political speech – which is inevitably filled with puffery and false statements – is a dangerous road to travel.

© The American Interest LLC 2005-2016 About Us Masthead Submissions Advertise Customer Service