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financial feasibility reports or studies on the construction


and operations of the project or enterprise;

“ (D) A description of the intended use of the pro



ceeds of the offering;






“(E) A statement of counsel's opinion as to the legality of the issuance of the securities to be offered;

“(F) A statement of the availability of the reports required by this section; and

" (G) Such other similar and specific information 10 as the Commission may by rules or regulations require

as necessary or appropriate in the public interest or for

the protection of investors; 13 except that, prior to any sale, the information specified in 14 subparagraphs (A), (B), and (E) may be set forth in 15 preliminary form.

"(c) The provisions of subsection (b) shall not apply 17 to an issuer solely by reason of an offer or sale of municipal




18 securities





“(1) the disclosure with respect to which has been approved, after hearing, as adequate for the protection of investors by a State governmental authority (other than the issuer) expressly authorized by law to grant such approval, or

“(2) which would meet the criteria set forth in sections 3 (a) (9), 3 (a) (10), 4(1), 4(2), 4(3), or






4 (4) of the Securities Act of 1933 if such offer or sale


were not within the scope of section 3 (a) (2) thereof. .3 “(d) The Commission may from time to time by its 4 rules and regulations, and subject to such terms and condi5 tions as may be prescribed therein, change the minimum 6 amounts set forth in subsections (a) (1) and (b) (1) if, 7 giving due regard to such factors as general economic condi8 tions, costs involved, and the nature of the distribution sys9 tem for municipal securities, such change is deemed to be 10 appropriate in the public interest. 11 “(e) The Commission may prescribe, in regard to re12 ports and distribution statements made pursuant to this 13 section, the form or forms in which the required informa14 tion, including the financial statements, shall be set forth,

15 and the accounting methods to be followed in the prepara

16 tion of financial statements.


“ (f) (1) The issuer shall make the reports required by 18 subsection (a) (1) of this section available upon request to

19 security holders at the issuer's expense and to others at their 20 expense and shall give appropriate public notice of such 21 availability. 22 “(2) The issuer shall make the distribution statement 23 required by subsection (b) (1) of this section available to 24 municipal securities brokers, municipal securities dealers, and


1 in accordance with such rules and regulations as the Com

2 mission may prescribe as necessary or appropriate in the 3 public interest or for the protection of investors.


“(3) The reports and distribution statements required

5 by this section shall also be maintained by the issuer at a


6 designated location for examination by the public in accord7 ance with such rules and regulations as the Commission may 8 prescribe as necessary or appropriate in the public interest 9 or for the protection of investors. The Commission may also

10 contract to establish a central repository which shall receive

11 and maintain such reports, and may require the contractor

12 to adhere to such rules and regulations as the Commission 13 may prescribe in furtherance of the purposes of this section. 14 Each person subject to the requirements of this section shall, 15 upon the establishment of any such repository, thereafter file 16 copies of reports and distribution statements required to be 17 prepared by this section with the repository in accordance 18 with such rules and regulations as the Commission finds are

19 necessary or appropriate in the public interest.


(g) In no event shall any underwriter of an issue of 21 municipal securities (unless such underwriter shall have 22 knowingly received from the issuer for acting as an under23 writer some benefit, directly or indirectly, in which all other

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24 underwriters similarly situated did not share in proportion

be able


1 in, or as a consequence of, any suit for damages in excess of 2 the total price at which the issue was sold by it to the 3 public.". 4 SEC. 3. The amendments made by section 2 take effect

5 on January 1, 1977.

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On the other hand, the investment banking community could impose these requirements as a condition for the purchase of municipal securities. This has been happening in several instances during recent months but there are several drawbacks. For one thing, financial information is usually not reviewed or verified by independent public or certified accountants. Furthermore, the 1975 Securities Act Amendments expressly limits the authority of the SEC, the Municipal Securities Rulemaking Board and underwriters from requiring detailed disclosures from municipal issuers. The Board, for example, can only require dealers to supply information to investors which is generally available from a source other than the issuer.

The final approach of empowering the Federal Government to impose disclosure requirements is embodied in the bills now pending before our subcommittee, although there are substantial differences between them. Senator Eagleton's bill would subject municipal issuers to the full sweep of the registration provisions of the Securities Act of 1933.

In contrast, my bill would require the preparation of annual reports and distribution statements, specify their contents, and limit the SEC's responsibility and authority to administering the reporting requirements. In this way, bondholders and prospective investors would be fully informed of the precise nature and terms of the bonds being offered, as well as various other relevant matters concerning the issuer. But, the bill does not contemplate or permit direct regulation of municipal issuers through registration, waiting periods or through the filing of sale documents with the SEC.

In addition, only municipalities of significant size would have to comply with the annual report and distribution statement requirements of the bill. At the reporting levels in the bill, it is estimated that only 6 percent of the approximately 78,000 municipal issuers would have to prepare annual reports. It is more difficult to estimate the impact of the distribution statement requirements, especially since the bill expressly exempts offers or sales approved by an authorized State authority-a pattern which the bill would encourage.

Local governments must be able to borrow at reasonable costs. How best to achieve this result is the subject matter of our hearings and of the legislation before us today. I am confident, however, that as a result of our deliberations, accounting and disclosure standards acceptable to investors and the various governmental, trade, and professional groups involved in the municipal securities markets can and will be developed.

Senator WILLIAMS. We have a substantial list of witnesses for opening testimony and appropriately begin with the sponsor of one of the bills before us, Senator Thomas Eagleton of Missouri. So we welcome you, Senator Eagleton.



Senator EAGLETON. Thank you, Mr. Chairman.

I sincerely appreciate your invitation to be the first witness in these hearings on regulation of municipal securities. I commend you and

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