The Securities and Exchange Commission (SEC) Chairman, Christopher Cox, warned on Friday that the SEC intends to make municipal market fraud investigations a top priority this year because "the size of the municipal market is enormous, with $2.5 trillion of securities outstanding." To help prosecute such fraud, the SEC is launching a fraud task force, to be run out of the SEC's Philadelphia office.

The SEC has already commenced several investigations. At least three firms have received Wells notices, which inform a recipient that the SEC plans to recommend enforcement or administrative proceedings, in alleged bid rigging of guaranteed investment contracts (GIC) and interest-rate swaps. Other firms are expected to soon receive Wells notices. In its investigations, the SEC is inquiring into whether firms stated that bidding practices for GICs and other investment products were competitive when they were not, whether the firms made or received inappropriate payments, fees or kickbacks, and whether the firms failed to disclose any other pertinent information to investors and issuers.

The SEC is not the only branch of the federal government probing fraud in the municipal market. Since at least November 2006, the Justice Department's Antitrust Division, in cooperation with the Internal Revenue Service's Criminal Investigation Division, has been conducting its own criminal investigation, looking at anti-competitive behavior (e.g., collusion between firms), bid rigging, and price fixing regarding dealings between firms that, in some cases, date back to 1992.

For more information regarding this topic, please contact:

Justin P. Klein at 215.864.8606 (kleinj@ballardspahr.com), Partner in Charge of Ballard's Securities Group and Co-Partner in Charge of Ballard’s Corporate Compliance and Investigations Group.

John C. Grugan at 215.864.8226 (gruganj@ballardspahr.com), Co-Partner in Charge of Ballard's Corporate Compliance and Investigations Group, and Partner, Ballard's White Collar Litigation Group.

Brian Walsh at 215.864.8510 (walsh@ballardspahr.com), Partner, Ballard's Public Finance Group.


Copyright © 2008 by Ballard Spahr LLP.
www.ballardspahr.com
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This newsletter is a periodic publication of Ballard Spahr LLP and is intended to alert the recipients to new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer concerning your situation and specific legal questions you have.