In a recent administrative settlement involving an issuer that is not subject to the registration and reporting provisions of federal securities laws, the Securities and Exchange Commission raised eyebrows by premising its action, in part, on a weaknesses in internal controls.
The case, settled in August, involved a so-called “Section 529” college savings plan, which for SEC purposes is treated like a municipal security—the general term referring to securities issued by local governmental subdivisions, as well as securities issued by states and political subdivisions or agencies of states. Municipal securities are specifically exempt from many of the requirements of the Securities Exchange Act of 1934, including the Section 13 and Sarbanes-Oxley requirements relating to internal controls. However, issuers of municipal fund securities are still subject to the basic anti-fraud provisions of the federal securities laws.
