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Weak Muni Bond Disclosure Hides Real Problems

January 26, 2011

WSJ reported today that muni-bondholders are not being informed as to the state of municipalities via financial statements filed with EMMA, Electronic Municipal Market Access (see link below).

Federal regulators’ power in this realm is limited because municipal borrowers are unregulated. But they are trying to crack down on the disclosure issue.

“If a municipality is in dire financial straits, we want to know if that information was disclosed to bond holders in a timely fashion,” says Elaine Greenberg, who runs the municipal-bond unit set up by the SEC last year. “It’s not good enough to put the information out there late. Investors need information that is current, not stale, to make informed investment decisions.”

At the request of The Wall Street Journal, DPC DATA Inc., a specialist in municipal disclosure, did an extensive analysis of disclosure and found the problem growing since a 2008 study. Of 17,000 bond issues it studied, more than 56% filed no financial statements in any given year between 2005 and 2009. More than one-third of borrowers entirely skipped three or more years, and the number grew to 40% in 2009, as credit woes mounted. Another 30% filed extraordinarily late in 2009.

Richard Little, a retired financial advisor in Danville., Calif., with about 60% of his multi-million portfolio in municipal bonds, says he has taken to driving to municipalities where he holds stakes to see if stores are full and the roads have traffic.

“Historical data shows you the risk is low,” he says. “In reality, I’m petrified.”

Entire article, click here

EMMA website, click here

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