Recent changes to federal securities laws require municipal advisors to register with the Securities and Exchange Commission (the “SEC”). On December 20, 2010, the SEC released proposed rules for registration (the “SEC Release”). The proposed rules, as written, impose unanticipated and burdensome registration requirements on appointed members of the governing bodies of state or local governments, agencies, or instrumentalities. If a state or local government, agency, or instrumentality issues municipal securities or invests public funds, and an appointed member of the board deliberates on such matters in carrying out his or her duties, the appointee may be a municipal advisor under the proposed rule and may be required to register with the SEC.
The Dodd-Frank amendments to the Securities Exchange Act of 1934 make it unlawful for a municipal advisor to provide advice to or on behalf of a municipal entity or an obligated person with respect to municipal financial products or the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, unless the municipal advisor is registered with the SEC. The proposed rule explicitly excludes from the definition of “municipal advisor” any municipal entity or the employee of the municipal entity. Instead of determining, however, that the term “municipal entity” includes its governing body, the SEC commentary to the proposed rule concludes that the definition of “employees of a municipal entity” includes “any person serving as an elected member of the governing body of the municipal entity to the extent that person is acting within the scope of his or her role as an elected member of the governing body of the municipal entity.”
Significantly, however, the SEC Release explicitly excludes appointed members of a governing body as employees, thereby including the appointed members as municipal advisors:
The Commission does not believe that appointed members of a governing body of a municipal entity that are not elected ex officio members should be excluded from the definition of a “municipal advisor.” The Commission believes that this interpretation is appropriate because employees and elected members are accountable to the municipal entity for their actions. In addition, the Commission is concerned that appointed members, unlike elected officials and elected ex officio members, are not directly accountable for their performance to the citizens of the municipal entity.
Under the proposed rule, members of the appointed boards of state agencies, university systems, local authorities and commissions, nonprofit conduit issuers, and a variety of other state and local municipal and county instrumentalities could be subject to registration and the accompanying burdens of record keeping and administrative compliance, and to a heightened fiduciary standard of care.
It is impossible for state and local government to operate without appointed officials, and the SEC’s position is ill-considered. If you are interested in commenting on the proposed SEC Rule, the comment period lasts until 45 days after the publication of the SEC Release in the Federal Register.
This article was prepared by Neil Thomas (firstname.lastname@example.org or 713 651 3613) from Fulbright's Public Finance Practice Group. If you have questions concerning this article, or would like assistance in commenting on the Proposed Release, please contact any of our Public Finance attorneys.
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Fulbright & Jaworski’s Public Finance Practice Group collaborates with clients to help them achieve their objectives in the municipal securities marketplace. Our municipal securities practice annually ranks as one of the most active in the nation. In 2009, The Bond Buyer ranked Fulbright & Jaworski ranked 6th in the nation as bond counsel helping to issue more than $10.4 billion par amount of bonds in more than 265 issues.
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 The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 975(c)(1), 124 Stat. 1920 (the “Dodd-Frank Act”) (amending 15 U.S.C. § 78o-4(c)(1)).
 S.E.C. Release No. 34-63575: File No. S7-45-10 (Dec. 20, 2010). As of this writing, the proposed rule has not been published in the Federal Register. The proposed rule and commentary is available at the SEC’s website: http://sec.gov/news/press/2010/2010-253.htm.
 A “municipal entity” means “any State, political subdivision of a State, or municipal corporate instrumentality of a State, including (A) any agency, authority , or instrumentality of the State, political subdivision, or municipal corporate instrumentality; (B) any plan, program, or pool of assets sponsored or established by the State, municipal subdivision, or municipal corporate instrumentality or any agency, authority , or instrumentality thereof, and (C) any other issuer of municipal securities.” Dodd-Frank Act, Pub. L. No. 111-203, § 975(e)(8), 124 Stat. 1922 (adding 15 U.S.C. 78o-4(e)(8)). A municipal entity would include pension funds, government pooled investment funds, and 529 plans.
 “’[S]olicitation of a municipal entity or obligated person’ means a direct or indirect communication with a municipal entity or obligated person made by a person, for direct or indirect compensation, on behalf of a broker, dealer, municipal securities dealer, municipal advisor, or investment adviser . . . that does not control, is not controlled by, or is not under common control with the person undertaking such solicitation for the purpose of obtaining or retaining an engagement by a municipal entity or obligated person of a broker, dealer, municipal securities dealer, or municipal advisor for or in connection with municipal financial products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of a municipal entity . . . .” Dodd-Frank Act, Pub. L. No. 111-203, § 975(e)(9), 124 Stat. 1922-23 (adding 15 U.S.C. 78o-4(e)(9)).
 Dodd-Frank Act, Pub. L. No. 111-203, § 975(c)(1), 124 Stat. 1920 (amending 15 U.S.C. § 78o-4(c)(1)).
 Dodd-Frank Act, Pub. L. No. 111-203, § 975(e)(4), 124 Stat. 1922-21 (adding 15 U.S.C. 78o-4(e)(4)).
 SEC Release at 40-41.
 SEC Release at 41
 “A municipal advisor . . . shall be deemed to have a fiduciary duty to any municipal entity for whom such municipal advisor acts as a municipal advisor, and no municipal advisor may engage in any act, practice, or course of business which is not consistent with a municipal advisor’s fiduciary duty or that is in contravention of any rule of the Board.” Pub. L. No. 111-203, § 975(c)(2), 124 Stat. 1920 (amending 15 U.S.C. 78o-4(c)(1))