Harrisburg, Pennsylvania Charged By SEC For Misleading Financial Statements

The economic woes of Harrisburg, Pennsylvania, caused mainly by a troubled incinerator project have been mainstays in the economic news cycle. Often in the news as a potential candidate for bankruptcy protection under chapter 9 of the Bankruptcy Code, Harrisburg can now add securities fraud to its list of woes.

Harrisburg has agreed to settle charges leveled by the SEC against it related to Harrisburg's alleged failure to disclose information of its financial troubles. It is not the size of the fine, but it is the charges that should cause municipalities and others to take notice. Harrisburg agreed to settle the charges without admitting or denying the findings, and no fine was levied against it or city officials. The Wall Street Journal reported that this was the first time the Securities and Exchange Commission ("SEC") has brought charges against a municipality and its officials for making misleading financial statements outside its securities disclosure documents related to bond offerings.

The alleged offending statements were made in the city's budget and during the mayor's state-of-the-city address. The Wall Street Journal noted that the SEC called the mayor's state-of-the-city address misleading, because it did not go into detail about the impact the incinerator debt was having on the city's finances.

The real issue is whether the SEC should be reviewing political statements for financially misleading statements. Does doing so lessen the importance of the municipalities Official Statement? The judge who must...