1.9.  Anti-Fraud Regulation

While municipal securities are exempt from registration, they are not exempt from anti-fraud regulations. Under the Securities Acts Amendments of 1975, all anti-fraud regulations that apply to registered securities also apply to municipal securities.

These anti-fraud provisions apply to persons, including municipal issuers, municipal advisors, brokers, dealers, and municipal dealers.

For the Series 54 exam, the MSRB wants you to know about one piece of the anti-fraud law that applies particularly to municipal advisors. We break the law into two parts and provide examples for each part.

(1) No broker, dealer, or municipal securities dealer shall make use of the mails or any means or instrumentality of interstate commerce to effect any transaction in, or to induce or attempt to induce the purchase or sale of, any municipal security, and no broker, dealer, municipal securities dealer, or municipal advisor shall make use of the mails or any means or instrumentality of interstate commerce to provide advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products, the issuance of municipal securities, or to undertake a solicitation of a municipal entity or obligated person, in contravention of any rule of the Board.

This first part of the law restricts municipal securities dealers and municipal advisors from conducting any kind of securities-related commerce that violates MSRB rules. The following examples are based on actions that the SEC has brought against municipal dealers and municipal advisors under Section 15B(c)