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Federal Court Upholds Historic SEC Enforcement Action against a Municipal Official

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John M. Kamins
Foster Swift Municipal Law News
February 27, 2015

Editor’s Note: Based on a new development, this updates the “SEC Announces Enforcement Actions against Municipal Bond Issuer and Its Former Officials” article in our January 2015 newsletter.  

On January 28, 2015, Judge Avern Cohn of the federal court in Detroit entered a final judgment against a former mayor of a Michigan city, approving a historic settlement agreement between the Securities and Exchange Commission (SEC) and that individual. The judgment upheld the SEC’s first-ever civil penalty against an elected municipal official as a “control person” for securities law violations under the Dodd-Frank Act of 2010.  This has great significance for officials whose municipalities’ bond offering documents may be similarly subject to SEC scrutiny and enforcement actions. 

The former mayor’s consent judgment with the SEC imposed a $10,000 civil penalty against him personally and permanently barred him from participating in any bond offerings. The SEC’s charges were based on allegedly false and misleading statements in bond offering documents in 2009-2010. The SEC charges did not allege that he participated in creating the offering documents. Rather, the SEC charges alleged that the former mayor was liable as a “control person.” The SEC explained this in a brief, asserting that because the mayor “controlled the City and the City Administrator during the period that each one violated the federal securities laws, he is liable for their violations to the same extent each one of them is liable.”

John Kamins leads Foster Swift’s bond counsel and public finance practice. He is the disclosure counsel to the City, including for the remedial measures, mentioned in the above article.