MSRB cautions issuers on selective disclosure

By Jay Fishman, J.D.

The Municipal Securities Rulemaking Board (MSRB) released an advisory on selective disclosure, cautioning municipal securities issuers, dealers and advisors of their potential liability even though not being subject to the SEC’s Regulation FD for corporate issuers. The MSRB explained that these municipal market participants do remain subject to the Securities Act’s and the Exchange Act’s antifraud provisions, thereby creating liability for them in the following ways:

1. The municipal dealer or advisor selectively discloses nonpublic material information that was known to the issuer at the time the disclosure was made, but that information was not included in a preliminary official statement or other required disclosure: the relevant documents likely suffer from a material omission or misstatement. 
2. An individual selectively discloses nonpublic material information in breach of a duty to the issuer, and the recipient of that information buys or sells the issuer’s securities based on the information: this transaction could constitute insider trading. 

To avoid the above liabilities, the MSRB advisory asks municipal securities issuers, dealers and advisors to consider adopting Regulation FD’s dissemination principles to address how to handle instances of selective disclosure if they occur and, moreover, advocates posting the principles on the MSRB’s EMMA website. The MSRB additionally provides a set of guiding principles for issuers seeking to enhance their disclosure practices.

The advisory’s overall message, as stated by the MSRB’s Executive Director Lynnette Kelly, is to encourage municipal securities issuers and their financial professionals to protect the integrity of the municipal market by making full and fair disclosures to all investors. She declared that even inadvertent selective disclosure can disadvantage certain investors.