WILSON & MCILVAINE

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APPENDIX A

but confers upon them jurisdiction concurrent with State courts
of all suits in equity and actions at law to enforce any liability
or duty created thereby. (Section 22; 15 U.S.C. §77v). The
Eleventh Amendment would not bar access by the United States
or an agency or instrumentality thereof, such as the Securities
and Exchange Commission, to the Federal courts, and the Federal
courts could hear injunction suits filed by the Securities and
Exchange Commission. However, in our opinion the Federal courts
would not have jurisdiction to hear any suit by a citizen (including
a corporation) arising under the 1933 or 1934 Act against a State
or an arm or alter ego of a State. (See, Hans v. Louisiana,
134 U.S. 1 (1893); Employees v. Dept. of Public Health and Welfare,
supra). The Federal courts would, however, have jurisdiction
to hear such a suit by a citizen (or a corporation) against a
county, city, or lesser governmental unit of a State (Lincoln
County v. Luning, 133 U.S. 529 (1890); see, Edelman v. Jordan,
supra), but, as stated above, we doubt whether the Federal Con-
stitution would permit the imposition of any liability upon an
issuer of municipal securities. While the 1933 Act would afford
a citizen (including a corporation) access to a State court, resort
to a State court would be necessary only in a suit against a State
or arm or alter ego of a State. We believe, as stated above, that
such a suit would fail in most cases and would introduce other
complex issues of both Federal and State law and of the right of
Federal courts to review decisions of State courts on such Federal
questions.

We have made no distinction between municipal securities issued to raise funds for governmental operations and those issued to raise funds for proprietary operations since it seems to us that the borrowing of money and the issuance of municipal securities are essential to the control of fiscal policy which is essentially governmental. It is, of course, possible that the United States Supreme court may attempt such a distinction and impose civil liability in cases where the funds were for proprietary purposes and the control of fiscal policy is not significantly impaired.

Annexed here to as Exhibit 1 is a brief outline of matters which would appear to require consideration by the Congress in connection with any contemplated amendment of the 1933 and 1934 Acts to regulate further municipal securities.

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EXHIBIT 1

1933 Act

Revision of the following provisions of the 1933 Act should be considered if issuers of municipal securities are required to register their securities under the 1933 Act:

1. Section 3 (a) (2)

2.

3.

This provision presently exempts municipal securities
from all provisions of the 1933 Act except Section 17.
Deletion of the language in Section 3 (a) (2) relating to
municipal securities would be the basic amendment required
to bring offerings by such issuers under the 1933 Act.

Section 6

The provisions relating to execution of registration
statements would be ambiguous with respect to issuers
of municipal securities, particularly the requirement
of execution by a majority of the board of directors or
persons having the power of management of the issuer.
If the latter requirement were applied to governmental
issuers, then members of state legislatures and city
councils might be required to sign registration state-
ments and be exposed to the civil liability provisions
of the 1933 Act. Section 6 expressly provides that
registration statements filed by foreign governments
need only be signed by their authorized representative
in the United States or the underwriter who sells their
securities. This sensitivity to the special execution
problems posed by governmental units strongly suggests
the need for amendment of Section 6 to specifically
deal with execution of registration statements by issuers
of municipal securities.

Sections 7 and 10

These provisions deal with the required content of the registration statement and prospectus. At present they provide that the information required of foreign governments and political subdivisions is set forth in Schedule B to the 1933 Act while information required of all other

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issuers is set forth in Schedule A. Schedule A describes
information in the main related to a for-profit business
and would not be applicable to an issuer of municipal
securities. On the other hand, Schedule B describes in-
formation clearly related to governmental entities but
by its terms applies only to a foreign government or
political subdivision thereof. Accordingly, if registra-
tion of municipal securities is required, then Sections 7
and 10 should be amended to provide expressly for another
Schedule which sets forth the information required in the
registration statement and prospectus covering such securi-
ties and such a Schedule should be added to the Act.

1934 Act

In considering the possible application of the 1934 Act to issuers of municipal securities, the following matters are of special significance:

1.

2.

3.

If an issuer of municipal securities were required to
register an offering of its securities under the 1933
Act, then such an issuer would become subject to the
limited periodic reporting requirements under Section 15(d)
of the 1934 Act and the liability and enforcement provi-
sions relating to persons who file 1934 Act reports.
(It is noteworthy that foreign governments and their
subdivisions are expressly excluded from the filing re-
quirements of Section 15(d).)

If issuers of municipal issues were required to register under the 1933 Act, then it might be advisable to amend Section 15B (d)(1) of the 1934 Act to delete the provision prohibiting the Commission from requiring issuers of municipal securities to make filings under the 1934 Act of documents to be used in connection with an offering of securities. This amendment, however, would not be critical because at present there are no ancillary 1934 Act preoffering filings required in connection with 1933 Act registrations.

In the event Congress desired to subject to the 1934 Act
all issuers of municipal securities which had a publicly
held class of securities outstanding, then many policy
considerations would be required with respect to the extent

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that the 1934 Act should apply to such issuers and their securities. At present, issuers with a class of publicly held securities (subject to certain exclusions) are required to register such class under Section 12 of the 1934 Act and the issuers thereby become subject to the reporting requirements under Section 13 and the proxy rules under Section 14 and their officers, directors and 10% stockholders become subject to the reporting and short-swing profit recapture rules under Section 16. Sections 14 and 16 would have no applicability to issuers of municipal securities and, therefore, it would be inappropriate to amend Section 12 to require full 1934 Act registration by issuers with a publicly held class of municipal securities. Rather, it would be preferable to add a new provision to the 1934 Act requiring periodic reporting by such issuers. Such a provision could define publicly held by reference to a class of securities held of record by a certain number of persons and it should set forth the general types of information to be contained in the reports. Finally, adding a new 1934 Act provision requiring periodic reports by such issuers would require an amendment to Section 3(a)(12) which defines "exempted securities" for purposes of the 1934 Act and which provides a partial exemption for municipal securities from many of the provisions of the 1934 Act. Any amendment to Section 3 (a)(12) should be done with precision because, for many purposes under the 1934 Act, municipal securities should remain within the definition of exempted securities.

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You have requested our opinion concerning the constitutionality of federal legislation requiring states, cities and other political subdivisions that sell securities to the public to prepare and publish financial statements and other appropriate information. Our opinion is as follows:

1. Congress has the power under Article I, Section 8, Clause 3 (the "Commerce Clause") of the Constitution to require states, cities and other political subdivisions to publish financial statements and other appropriate information in connection with the sale of their securities in interstate commerce and to publish such statements and information periodically as long as securities thus sold remain outstanding.