SEC, IRS to crack down on muni bond shenanigans

The Securities and Exchange Commission and the Internal Revenue Service have agreed to work more closely together to regulate the massive municipal bond market, the two agencies announced Tuesday. The heads of the SEC and the IRS signed a document called a memorandum of understanding aimed at improving compliance with the agencies' rules related to municipal securities, especially tax-exempt bonds. The agencies also agreed to share information on practices and risks in the "muni" securities market. State and local governments raise funds for schools, roads and hospitals by issuing bonds, in a market estimated to be worth about $2.8 trillion. Retail investors increasingly participate in the market, seeking safe investments with reliable returns. Crises in several municipalities have underscored the importance of the muni market. In Jefferson County, Ala., a $3.9 billion debt debacle brought the state's most populous county to the brink of filing what would be the largest municipal bankruptcy in U.S. history. The debt ballooned in March 2009 when JPMorgan Chase & Co. canceled interest-rate swap contracts with the county worth around $700 million. Last July, the SEC proposed tightening rules governing disclosures about municipal securities to aid investors.