you should know that the fcc views board members as critical as gatekeepers. our aim is to keep you informed about your legal obligations as board members and quite frankly to keep the city ahead of the curve in our disclosures practices. with that, i will turn it over to john. i would encourage you to answer any questions you may have and we are available after the presentation and it anytime during which an offering document is approved by this board for advice and counsel. thank you.

>> we have the sec speeches, there has been literally hundreds of actions against governmental issuers. we have been asked to take all of that and present a comprehensive and authoritative and entertaining analysis all within 30 minutes. as far as the entertaining, i don't think that will be highlighting the federal securities laws. i would like to think that we can address that. to make sure that the critical investment is not lost, let me give you the two minute version

of this 30 minute presentation. as board members, when you approve the official statement, the document goes to the investors, you have certain responsibilities imposed upon you. this is a personal liability and the city's liability. it really boils down to one issue, are there any current material facts that you are aware of where your concern might impact the credit of securing the bonds. i their current facts or are there any adverse material financial trends that you might be aware of that would impact the ability to repay the bonds. we are speaking to your unique position where you might have knowledge that we don't have.

muni to let us know of any material facts, and material trends, what do you know that we may not know, all so what do you know that we might also know? let's take litigation as an example. you have the obligation to be there read the official statement and see how it is addressed or to speak to us and say, why have you not addressed it? this is really that simple. if this is not followed, there are serious implications once again for both the city as well as ourselves. what we will be discussing today are the various contexts in

which the city disclosure occurs, the standards that apply, the types of actions that the sec can bring. therefore, the rules and regulations that apply to corporate finance to not apply in this context. even though there's no requirement to register this, the city is subject to the anti- fraud provisions in the federal securities laws. these apply to both those subject to administration and registration and not.

in addition to the provisions uncommon the sec has jurisdiction not over the city but over municipal security service and dealers and we will see how they use that jurisdiction to impose jurisdiction on you. the disclosures are made in three principal context, the first is primary disclosure which means we are coming to the market with new financing. as board members, that document comes to you and you approve that document. in addition to the primary disclosures come on this is referred to as secondary or ongoing disclosures that the city makes. this is where the jurisdiction comes into play. the sec has a role which says to the broker dealer acting as

underwriters that they are not allowed to underwrite your securities, they cannot keep these open unless you provide information. the sec has used this to make sure they you provide reports to the market. cash in addition to contractually, you can voluntarily make disclosure to the marketplace. the third context in addition to the official statements and the continuing disclosure i men's that you make, the sec has a broad concept that any statement that reasonably expected to reach investors is possibly subject to anti-fraud liability. here is the way it was phrased. a municipal issuer when it

releases information to the public, it is reasonably expected to reach investors. those disclosures are subject to the anti-fraud provisions. the fact that they are not published does not alter the mandate or violated the anti- fraud descriptions. what this means is that the investor information on the website was press releases from the mayor's office. all of those could be considered a reasonable investors. in addition to those being the three context, one of the standards that applies to these

disclosures. once again, even though your securities are exempt from registration, the anti-fraud provisions apply. what they say is to save time, i am not going to, at least on all of these slides, repeat verbatim what is in the text. in short, what it says is that there can be no material misstatements or omissions when coming into the market. no material mistakes or omissions. what is material? this has been defined as " substantial likelihood that under all the circumstances, the fact would have assumed actual significance in the deliberations of the reasonable investor. it is not talking about any particular investor was material

but rather the investor would have met the objective standard of saying yes, that would have an effect -- that would have affected my decision. fothese can be actions. the fcc has a number of forms they can use. they can bring it administrative action. -- the sec has a number of forms that they can use. they can bring a civil action in federal court. the sec does not have jurisdiction over criminal cases. they refer that to justice. in addition, if they think there has not been enough advice to the market and they think the people involved are not aware

with their responsibilities were, they can issue a report by which they advise of the responsibility and it defies the orange county report. they must show that there is a materially misleading mistake or omission that has been made or is committed which can be either intent or recklessness. for the ninth circuit, they have defined recklessness as an extreme departure from the standards of ordinary care which presents a danger of misleading investors that is either known to the defendant or so obvious that the actor must have been aware of it.

they have to show the same three elements. in addition, they have to show those damages as well as reliance on misleading statements. there has been literally enforcement actions against government issuers. there is those that we will be discussing. in many cases, they were paid their principal interest in full when it was too. there has been no damage. nonetheless, there is enforcement action. when i say no damages, let me speak to the fact that in san diego, which i am familiar with, even though there is no private litigation's because there was no damages, the city is

nevertheless out of the financial market. at the end of the day, their expenses were north of $40 million to defend themselves. there is not a slide on this next point but in addition, there is a section 17. this allowed the sec to bring in action on negligence. with that being the type of enforcement action, who are the possible defendants? the sec can bring in action against a governmental issue or as the entity.

they can bring an action against government officials and employees. they can bring in action against employees. the sec has on its web site and complete compendium of all of the cases that they have brought in the index. to date, there has been no action as the body. this is the only advice by which they directly speak to your responsibility. before i go into the orange county report under which we're operating here.

let me focus on slide 12th. this is important. there are these various context that we discussed and there is potential liability for the city, whether it is official statements, continuing disclosure filings, this broad concept of any communication to reach investors, they are all establishing liability for the city as the city. so far, the only advice that we have about your potential liability is dealing with official statements, not these other documents. i would like to keep that discussion between the liability of the city and yours as board members. orange county, this is the first

major enforcement action that goes back to 1996. you probably know a lot of the details in this. some of these are reflected on slide 13. in short, the argument was that the board itself new and what the investment strategy was in the county and the county was very defendant on that strategy and repay investors. for they were borrowing short and invest in long in claims of arbitrage.

this is the only advice that we have directly speaking to your responsibilities for board members. a public official might not authorize disclosure. once again, recklessly the concept of -- the cannot approve something that will be wrong. it does not mean that each one of you must read the official statement that you approved what the report says is that in the sec view, you have acted recklessly and bringing in to

question the ability to repay the securities and notwithstanding such knowledge, failing to take steps appropriate under these circumstances. this is the only advice that we have as your spouse but as board members. what i want to do is go into it the other cases. -- this is the only advice that we have as a responsibility as board members. what these speak to is that in the sec if you, it is not simply whether there is existing fact that is going to be immediately impact your debt service in the

near future, it is also a are you paying attention, are you aware of the material trends that could impact your abilities in the future. this is the first sec action against a governmental issue were. although that only applied to the city and not the officials, there is a separate action which was settled in 2010 which for the first time the sec went after individuals personally and they imposed monetary penalties out of their own pocket on these officials. there was four officials in san diego that ended up paying personal fines. what the sec concluded was that the city through its concluded -- through its officials failed to disclose material information. that information, the allegation was that there was substantial

and growing liability about the pension plan as well as retiree health care and their ability to repay those obligations. the sec referred to this as the elephant in the room. the argument was that the staff knew, the city councilman that there had been these various pension negotiations and the payments would grow significantly and they could be high enough that they would impact the service but there was never proper disclosure, never proper discussion of it. why was the material? the allocation was under sending its puncheons -- its pensions. these were expected to quadruple by 2009. this is dealing with misleading disclosures from 2002 and 2003. none of that was disclosed.

the argument that the sec made was that the city would have difficulty finding their future contributions without either new revenues reducing benefits or reducing city services. all that has been in place. those projections made about what to bring the annual payments occurred and the city of san francisco has been reducing services in response. we also dealt with misleading disclosure concerning pensions. we highlighted the key facts in slots 22 and 23. this is the first sec enforcement against the state. the rest has been against cities, counties, other government issuers. this one was for negligence. the mere negligence was sufficient to bring action

against the state of new jersey. slide 24 is the one i want to highlight. it is a very interesting statement by the sec and the strongest statement that have made about what they view, as far as written controls and training. what they said was the state was aware of the underfunding of pensions but due to a lack of procedures, the state made material misrepresentations. the sec, for the first time saying, the failure to have written controls, the failure to have training, was actually the cause of misleading disclosure. the sec, as we discussed, does

not have direct jurisdiction over issuers. they are seeking it. they are using enforcement actions to make the strongest statement they care about what they think should be imposed upon you. once again, britain controls and disclosure training. -- written controls and disclosure training. why you want to do both of these written controls and disclosure training? within the rigid controls and training, there is a greater likelihood that there will not be an omission when they come to market. the other key fact is, even if one were to occur, the sec cannot bring a case unless, at a minimum, there is negligence and possibly recklessness of intent.

what we are trying to establish by adopting britain controls is to establish a defense that says, even were there to be a problem, we have done what you assets to do. you told us to do britain controls and training. we have done that. why with the sec wants to bring enforcement action against us? it would not set an example to the market. 26 and 27 -- 26 is a slide that shows the key features within the original statement. 27 reflects certain observations, one of which is apparent that it is always easier after the fact when things go awry to say, was everything accurate about the disclosure? because of that, if there's any question about whether or not to disclose the tendency of the team is to disclose.

the sec, in the orange county report, those of us who have to interpret it, in reading it closely, they allege that the board members new material facts and did not bring it to the attention of the financial team. how do we interpret that? what advice can give you if we are not aware of whether that is the case? is it necessary that the board members, in each case, review the complete, official statement. the answer is no. the sec as short as you can reasonably rely upon financial staff as long as you are comfortable that they have the necessary experience and qualifications. we have a series of questions and i'm going to summarize these on slides 29-31. your situation is, the sec says there are two things you can do. read the document as a whole and

approve it or authorized the staff to do the approval. you have a blend of the two. what you do is approved it in preliminary form had authorized the staff to finalize it. what you should be doing is saying, are there any known existing facts, and i have used the litigation as the example, where there may be a material judgment? and you want to know how that is being handled. this situation where you have been briefed in a closed meeting with the city attorney's office, you are aware that they have it, you have to be comfortable with that disclosure. the other concern, besides the things you have been briefed about, is our concern, as members of the financing team, the city's attorney's concern,

are there any meetings you have of which you have knowledge that you like to bring to our attention? we can do the best with what we have to put together a comprehensive documents, but are there things that you know that we may not know? if you have any doubts whatsoever, bring them to our attention and if you can rely upon that judgment, you are then protected. what i want to establish, as far as your comfort in relying upon the staff, this is slide 34. we focus on the strong statement in the new jersey order that was the lack of written policies and training that led to the

problems. having read that, and based on the experience that the deputy attorney has, they have hired us to come in and helped draft written disclosure controls, policies, and also do the training. when you are determining whether or not you are comfortable relying on a financial staff, he lined up on the city attorney's office, recognize that we do have detailed written disclosure policies, you are conducting the training, the in the sec has asked us to do. in addition, there has been a working group established within the city's. this is comprised of all of the key city officials that had knowledge of the financial and legal matters going on in the city. to make sure that, collectively, they review official statements and that it is accurate. have engaged outside counsel to

help with these procedures and have the deputy city attorney for disclosure. once again, we established, we think, with the city attorney's office, the strongest possible defense. we have done exactly what the sec has asked us to do. we cannot guarantee that that will assure there will be no mistakes. what we can do is assure you it that we have done the best we can to defend you. were there to be some problem, you have a strong defense that you were not reckless, you were not deceitful, you did exactly what the sec asked you to do. with my 30 minutes, i have used 25. i normally take 90. i have curtailed this significantly to. what we did was, we have -- there are hundreds of sec enforcement cases. what i would frequently do is go through a number of the key thing -- the key cases that

affect issuers. for this presentation, we cut for that. you do not want to know all of those facts. what you want to know is our collective judgment as to how to proceed. we did highlight the one that speaks to you directly, the orange county report, and we took that into account. i would be happy to answer any questions about the procedures, the cases, anything else dealing with disclosure. president chiu: any questions? ok. thank you for your presentation. are there any members of the public that wish to comment on this presentation? >> i was promised someone would sing after i spoke. president chiu: i think we would love to see how walter would make securities rhyme with something.