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Are You a Municipal Advisor?

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) may have a direct impact on you, your 501(c)3 organization, or your bond issuing authority. 

On January 6, 2011, the Securities and Exchange Commission (“SEC”) issued proposed rules for the registration of municipal advisors. The proposed rules were part of the SEC’s implementation of the Dodd-Frank Act which President Obama signed into law on July 21, 2010. As part of the Dodd-Frank Act, Congress amended Section 15B of the Securities Exchange Act of 1934 to make it unlawful for municipal advisors to provide certain advice to, or solicit municipal entities or certain other persons without registering with the Commission. The proposed rule provides specific information on the registration requirements and outlines activities appropriate for municipal advisors.

Of concern is that the proposed SEC rule extends the definition of “municipal advisor” to include a broader group than the consulting, financial advisory, and investment banking firms one would expect. The proposed definition of municipal advisor includes a person (who is not a municipal entity or employee of a municipal entity) that:

(i) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products or the issuance of municipal securities; or

(ii) undertakes a solicitation of a municipal entity1

The catch is in the term obligated person. The SEC provided guidance that the term should be used as it is in Rule 15c2-12. Rule 15c2-12 is the rule governing disclosure in tax-exempt bond issues and applies to conduit borrowers and the officers thereof.

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