Donna Alberico
Unregistered municipal advisory exercise by legal professionals – significantly in inexpensive housing and “project-based” transactions – is an space of concern for the Securities and Change Fee’s Workplace of Municipal Securities, that workplace’s director mentioned Wednesday.
SEC muni chief Dave Sanchez made these feedback through the Nationwide Affiliation of Bond Attorneys’ annual convention being held in Washington this week. Whereas his workplace is unbiased and never part of the enforcement division, Sanchez has typically used his public feedback to
“Typically talking we have been unregistered municipal advisor exercise and since I used to be a part of writing the municipal advisor rule over a decade in the past, legal professionals have all the time been on the prime of the checklist of complaints and that actually hasn’t modified,” Sanchez mentioned throughout an SEC-related panel dialogue on the convention.
Specifically, Sanchez cited inexpensive housing and a number of the extra “project-based” varieties of transactions as areas “the place we’re seeing … legal professionals extra brazenly participating in structuring that is likely to be problematic.”
In relation to Sanchez’s feedback concerning unregistered municipal advisor exercise and legal professionals, Panel Chair Alice Ostdiek, a accomplice at Stradling Yocca Carlson & Rauth, mentioned that significantly when a lawyer is in a scenario the place there is not a municipal advisor on a deal, “your shoppers are going to have a look at you and say ‘Oh, you are the knowledgeable…inform us how this may work, or what ought to we do right here.”
Ostdiek mentioned that whereas the primary phrases out of her mouth are “I am not a monetary advisor,” shoppers will proceed to press for info anyway on subjects reminiscent of going to a financial institution versus doing a bond deal. Whereas she tells shoppers that she will be able to talk about the authorized penalties of that however not the monetary penalties, these conversations could be tough to navigate, Ostdiek mentioned.
Sanchez, citing his personal prior expertise as an legal professional in non-public follow, acknowledged that legal professionals within the scenario Ostdiek described are going to really feel strain.
“However actually on the finish of the day, there is no reply aside from you are simply going to should say ‘I can inform you concerning the authorized penalties not the monetary penalties,'” he mentioned, including that, alternatively, some legal professionals might really feel comfy giving basic info due to the final info exclusion.
“And that requires a little bit little bit of training,” Sanchez mentioned. “By the best way, there are a number of FAQs on the SEC web site about what’s basic info versus recommendation.”
In the beginning of his remarks referring to unregistered municipal advisor exercise and legal professionals, Sanchez referenced feedback made throughout a panel earlier that day by Andrew Kintzinger, counsel at Hunton Andrews Kurth.
Throughout that panel, which was additionally SEC-related, Kintzinger pointed to “the onslaught of exercise that municipal advisors are going through proper now,” which he mentioned encompasses “a complete spectrum of municipal advisors” starting from those that are a part of broker-dealer corporations that additionally present municipal advisory companies to smaller unbiased municipal advisor corporations.
“This entire spectrum are actually going through plenty of examinations from the [SEC’s] division of examinations and enforcement actions with respect to failing to register whenever you’re conducting MA actions if you have not registered, each within the constitution faculty house and the P3 house,” mentioned Kintzinger, who additionally cited “instances on conflicts of curiosity, instances on conflicts of curiosity resulting from payment preparations.”
Kintzinger mentioned he has participated in three boards since November the place regulators have been current and the place municipal advisors mentioned two issues which can be noteworthy for legal professionals:
“One, we need to get out of this mess, we’ll begin asking our issuer shoppers to all the time have disclosure counsels on board to assist us with disclosure in all of the supply and sale of municipal securities,” the legal professional mentioned. “And secondly, they are saying, ‘Effectively, you are us for municipal advisor exercise, what concerning the legal professionals?”
Kintzinger mentioned he was providing that info “not by means of saying I believe [MAs] have a leg to face on there, however we should be conscious that they are below the gun with enforcement and examination exercise proper now they usually’re saying to the regulators, ‘Effectively, what concerning the underwriters, what concerning the legal professionals?'”
