Ex-SEC Chief Levitt: Muni Market Massacre Is Coming

Ex-SEC Chief Levitt: Muni Market Massacre Is Coming

By: Julie Crawshaw

Former Securities and Exchange Commission chairman Arthur Levitt says there's a massacre about to happen in the municipal bond market.

The muni-market is “rife with the hallmarks of abuse: poor disclosure, little regulatory oversight, made-to-order accounting rules and insider deals driven by banker and consultant fees," Levitt writes at Bloomberg.

Moreover, Levitt says the culprit is not the SEC, but Congress, which should repeal the 1975 Tower Amendment that prevents such SEC oversight of the municipal bond market.

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“There is no other law in the U.S. with the same capacity to harm investors ¬� and despite repeated callls for its repeal, the new financial regulatory reform legislation did nothing significant on it,” Levitt observes.

"Earlier this year, Congress had a chance to give the SEC new authority to oversee the municipal bond market, but decided not to," he said. “Yet Congress, at most, recommended further study. In Washington, further study is tantamount to burial.”

The SEC, Levitt says, should still have the power to go further than it can now: It should be unshackled to confront the widespread abuses of municipal bond investors the same way it regulates the corporate bond market.

Still, Levitt notes that the SEC can do more without Congress. He suggests that the agency name the wrongdoers and sue or charge them individually, describe their malfeasance in detail, take on the bond advisers as well as the issuers and leave a mark bond fraudsters won’t soon forget.

New Jersey became the first state ever to be charged by the SEC for violations of federal securities laws, when it was charged with securities fraud for misrepresenting and failing to disclose information to investors, the Star Global Tribune reports.

The State of New Jersey agreed to settle the case, without admitting or denying any of the SEC’s findings.

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