SEC Order to Cease and Desist
From US Securities and Exchange Commission August 24, 2016
The violations discussed in this Order were self-reported by Respondent to the Commission pursuant to the Division of Enforcement’s (the “Division”) Municipalities Continuing Disclosure Cooperation Initiative. Accordingly, this Order and Respondent’s Offer are based on information self-reported by the Respondent….
Rule 15c2-12 of the Securities Exchange Act of 1934 (“Exchange Act”) generally prohibits any underwriter from purchasing or selling municipal securities unless it has reasonably determined that the municipal issuer or other obligated person has undertaken in a written agreement to provide annual financial information and, if not included in the annual financial information, audited financial statements when and if available, to the Municipal Securities Rulemaking Board’s (“MSRB”) Electronic Municipal Market Access system (“EMMA”)….
Respondent (State of Hawaii) failed to comply in all material respects with its commitment to provide certain types of continuing disclosure within the timeframes set forth in the continuing disclosure agreements….
In the official statements for the new municipal securities, Respondent made materially false and/or misleading statements about its prior compliance with its earlier continuing disclosure agreements, as follows:
Three negotiated offerings between 2011 and 2013 in which the final official statements read, in relevant part, ‘[t]he State has not failed to comply in any material respect with any of its previous continuing disclosure certificates under [Rule 15c2-12].’ This was false and/or misleading because, although Respondent filed selected portions of the required fiscal year 2009 and 2010 annual financial information for these years, neither audited nor unaudited financial statements were included in these filings. The information missing from these filings was subsequently filed in EMMA 223 and 206 days late, respectively. Respondent failed to file notices of late filings for each of those.
As a result of the conduct described above, Respondent violated Section 17(a)(2) of the Securities Act….
read … SEC Order
PDF: SEC Order to State of Hawaii
SEC News Release: SEC Charges 71 Municipal Issuers in Muni Bond Disclosure Initiative “…issuers and obligated persons sold municipal bonds using offering documents that contained materially false statements or omissions about their compliance with continuing disclosure obligations….”
UPDATE: Reaction from Truth in Accounting
Sheila Weinberg of Truth in Accounting was the first to expose the late CAFRs back in 2011. Contacted August 28 by Hawai'i Free Press, Weinberg points out:
“To be useful financial reports must be issued in a timely manner. The state's financial reports were so late, especially in 2009 and 2010, that they became almost useless in providing citizens and elected officials with the information needed to make informed decisions. The SEC is trying to protect bondholders from the state's delinquent financial report. While the state is now issuing its financial report in a more timely manner, who is here to protect the taxpayers?”