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Home My Public Portal AboutCity Council Training Session - 06 Feb 2018 - Agenda - Pdf Agenda City of Beaumont City Council Training Session 4:00 PM Beaumont Financing Authority Beaumont Utility Authority Beaumont Successor Agency (formerly RDA) 550 E 6th Street, Beaumont, Ca Tuesday, February 6, 2018 Materials related to an item on this agenda submitted to the City Council after distribution of the agenda packets are available for public inspection in the City Clerk’s office at 550 E. 6th Street during normal business hours Any Person with a disability who requires accommodations in order to participate in this meeting should telephone the City Clerk’s office at 951 769 8520, at least 48 hours prior to the meeting in order to make a request for a disability related modification or accommodation. Any one person may address the City Council on any matter not on this agenda. If you wish to speak, please fill out a “Public Comment Form” provided at the back table and give it to the City Clerk. There is a three (3) minute limit on public comments. There will be no sharing or passing of time to another person. State Law prohibits the Council from discussing or taking actions brought up by your comments. Page TRAINING SESSION CALL TO ORDER Mayor Carroll, Mayor Pro Tem Martinez, Council Member Lara, Council Member White, and Council Member Santos TRAINING ITEMS 1. Securities Law Disclosure Training BEAUMONT_SEC__POWERPOINT_ 3 - 21 Adjournment of the City Council of the February 6, 2018 Training Session at ____ p.m. The next regular meeting of the Beaumont City Council, Beaumont Financing Authority, Beaumont Utility Authority, and the Beaumont Successor Agency (formerly RDA), is scheduled for Tuesday, February 6, 2018, at 5:00 p.m. or thereafter as noted on the posted Agenda for Closed Session items in the City Council Board Room No. 5, followed by the regular meeting at 6:00 p.m. or thereafter as noted on the posted Agenda at City Hall. Beaumont City Hall – Online www.ci.beaumont.ca.us Page 1 of 21 Page 2 of 21 1 Prepared by: Brian P. Forbath, Esq. Vanessa S. Legbandt, Esq. Stradling Yocca Carlson & Rauth, P.C. 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 949.725.4000 P 949.725.4100 F www.sycr.com Municipalities in the SEC’s Crosshairs: Disclosure Responsibilities and Best Practices in an Era of Heightened Scrutiny 2/8/2018Page 3 of 21 SEC Settlement and Order •August 2017 Beaumont Financing Authority enters into settlement agreement with the SEC in which the BFA neither admits nor denies the allegations. •Under the terms of the settlement, the BFA did not pay any financial penalties but agreed to a number of undertakings, including the establishment of written policies and procedures and periodic training regarding all aspects of municipal securities disclosures and the accounting of bond proceeds and record keeping. •As part of the settlement, the BFA consented to the entry of an Order by the SEC to cease and desist from committing or causing any future violations of Section 17(a)(2) and 17(a)(3) of the Securities Act. 22/8/2018Page 4 of 21 •Under the terms of the settlement, the BFA also had to retain an independent consultant (law firm of Bradley Arant Boult Cummings LLP), to conduct a review of the BFA’s policies and procedures as they relate to all aspects of municipal securities disclosures, the accounting of bond proceeds and record keeping. •The independent consultant will be responsible for submitting a written report of its findings to the BFA and the BFA shall adopt the recommendations contained in the report. •The independent consultant review and report is almost complete. •Updates to policies and procedure expected in next 30-60 days will apply to the BFA, the City and all CFDs. Independent Consultant 32/8/2018Page 5 of 21 Public Statements by Beaumont Generally, no requirement to speak. When a municipality elects to “speak to the market,” it must be accurate and complete. Examples of public statements: •Preliminary official statements and official statements; •Continuing disclosure filings; •CAFRs; •Press releases and public statements by officials, such as State of the City/State of the District addresses. 42/8/2018Page 6 of 21 Indirect Regulation by the SEC •Municipal issuers are subject to the SEC’s antifraud rules even though they do not have to register securities and are exempt from the SEC’s periodic reporting requirements. •“When a municipal issuer releases information to the public that is reasonably expected to reach investors and the trading markets, such disclosure is subject to the antifraud provisions.” (SEC 2012 Report on Municipal Issuers) •“The fact that [statements] are not published for purposes of informing the securities markets does not alter the mandate that they not violate antifraud proscriptions.” (March 1994 Statement of the Commission Regarding Disclosure Obligations of Municipal Securities and Others) 52/8/2018Page 7 of 21 Securities Violations Under Rule 10b-5 Rule 10b-5: It shall be unlawful for any person . . . to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, in connection with the purchase or sale of any security. Intentional or reckless act is required. Under Section 17(a) of the Securities Act, the SEC can charge securities fraud under a negligence standard (“knew or should have known”). 62/8/2018Page 8 of 21 Rule 15c-12 –Continuing Disclosure •“A Participating Underwriter shall not purchase or sell municipal securities in connection with an Offering unless the Participating Underwriter has reasonably determined that an issuer of municipal securities . . . has undertaken . . . In a written agreement or contract for the benefit of holders of such securities, to provide [annual reports and material event notices] . . . Either directly or indirectly through an indenture trustee or a designated agent.” •The annual report must contain financial information and operating data, but underwriters may also impose other disclosure requirements on an issuer. 72/8/2018Page 9 of 21 Material Event Notices –Within 10 Days •Nine Events that Require Notification (including delinquencies, unscheduled draws, bankruptcy and ratings changes). •Seven Events that Require Notification if Material (including certain adverse tax opinions, modifications to the rights of the holders of the securities, substitution of security and non-payment related defaults). •Post-Issuance Disclosure must be filed and on EMMA and fully linked to all related bond issuances. 82/8/2018Page 10 of 21 Appropriate Disclosure of Noncompliance Any instances of material noncompliance with continuing disclosure obligations must be disclosed in the official statements for a period of five years following the noncompliance. •Beaumont recent compliance representations in offering documentation disclose the known instances of prior non-compliance as required by the regulation. 92/8/2018Page 11 of 21 The Question of Materiality •The materiality standard remains opaque, but it is clear that the SEC staff’s bar for materiality is very low. •Materiality is defined as: •a substantial likelihood that a reasonable bond investor would consider it important in making an investment decision; or •viewed by a reasonable investor as having significantly altered the “total mix” of available information. •In practice, SEC staff takes a subjective, hindsight view of materiality. 102/8/2018Page 12 of 21 Reliance on Professional Services •Issuers and principals are ultimately accountable for the accuracy of statements of fact about the issuer and cannot delegate this responsibility. •In the event of a misstatement, reliance on advice of professionals will only serve as a defense under limited circumstances. •Presence of counsel does not equate to advice of counsel (a defense requiring a privilege waiver): SEC generally requires a direct request for advice on a particular disclosure topic. 112/8/2018Page 13 of 21 Key Elements of Beaumont’s Disclosure Policy •Formal, written disclosure policy adopted on April 19, 2106 and expected to be updated with input from the Independent Consultant; •Establishes process and governing principles for ensuring accuracy of disclosures; •Requires the hiring of outside disclosure counsel in connection with any public offering. 122/8/2018Page 14 of 21 Key Elements of Beaumont’s Disclosure Policy •Periodic training is to be coordinated by the City Manager and the City Attorney with the assistance of disclosure counsel; •Policy contains details on annual continuing disclosure requirements and timing for filing: (1) financial data; (2) operating data; (3) audited financial statements (or CAFRs); and (4) material event notices; •City Finance Director responsible for preparing and filing annual reports and material event notices. 132/8/2018Page 15 of 21 SEC Enforcement Actions Municipalities Securities and Public Pensions Unit MCDC –SEC expects nearly strict liability for compliance. Recent cases have sought: •Financial penalties; •Individual accountability (control person liability); •Parallel criminal charges; •Admission of wrongdoing; •Public statements outside of offering materials or continuing disclosures. 142/8/2018Page 16 of 21 SEC Enforcement Investigations 152/8/2018Page 17 of 21 SEC Investigations –An Inside Look •An investigation is NOT a litigation; •SEC has active whistleblower program that pays bounties; •Broad document subpoenas; •Team of lawyers and accountants with no automatic protections offered by a court; •No designated timeline or budget; •Personal subpoenas issued to officials and staff (Yates Memorandum); •Cooperation and credibility are paramount. 162/8/2018Page 18 of 21 SEC Settlements Terms of settlement may take numerous forms: •Generally “neither admit nor deny” but may require an admission; •Cease and Desist Order; •Financial penalty and/or disgorgement; •Industry bar for individuals; •Compliance undertakings (including consultants and monitors); •Cooperation against others under investigation; •Future disclosure obligations. 172/8/2018Page 19 of 21 Privilege Issues –A Daily Concern •Maintaining privilege can be highly inconvenient on a day-to-day basis; •Investment bankers and developers frequently destroy privilege protections; •Consultants and financial advisors destroy privilege; o Unless deemed a “necessary party” to the legal advice; •Costly to review documents involving lawyers to determine privilege exemptions; •Remember to discuss insurance coverage for investigations during the renewal process. 182/8/2018Page 20 of 21 QUESTIONS? Brian P. Forbath, Esq. Vanessa S. Legbandt, Esq. Stradling Yocca Carlson & Rauth, P.C. 660 Newport Center Drive, Suite 1600 Newport Beach, CA 92660 949.725.4000 P 949.725.4100 F www.sycr.com 192/8/2018Page 21 of 21