## Facts

- Dolphin & Bradbury, Inc. was a registered broker-dealer that served as underwriter for a 1998 municipal bond offering financing construction of a parking garage in Harrisburg, Pennsylvania.
- The garage’s revenue prospects depended heavily on a connected office complex and the occupancy and lease payments of major tenants.
- Before the offering, there were substantial uncertainties about the office complex’s occupancy and the firmness of key tenant commitments.
- The SEC found that Dolphin and its president, Robert J. Bradbury, knew of, or were reckless in not knowing of, these uncertainties but did not ensure they were adequately disclosed in the official statement.
- The official statement presented favorable feasibility and revenue expectations while failing to clearly convey known, project-specific risks, which the SEC deemed misleading.
- The SEC instituted administrative proceedings, an ALJ found violations, and the Commission issued a final order finding antifraud violations and imposing remedies including a cease-and-desist order, civil penalties, and suspensions.
- Dolphin petitioned the D.C. Circuit for review of the SEC’s findings, legal conclusions, and sanctions.

## Issues

1. Whether substantial evidence supported the SEC’s findings of material misstatements or omissions in connection with the municipal bond offering.
2. Whether the omitted information about revenue viability and tenant commitments was material to reasonable investors.
3. Whether Dolphin failed to meet an underwriter’s obligation to conduct a reasonable investigation and exercise reasonable care in preparing and disseminating offering disclosures.
4. Whether the SEC’s remedies and sanctions were within its authority and not arbitrary, capricious, or an abuse of discretion.

## Decision

- The D.C. Circuit denied the petition for review and affirmed the SEC’s final order.
- The court held substantial evidence supported the SEC’s conclusion that the official statement contained materially misleading omissions about key risks to project revenues.
- The court agreed that Dolphin failed to conduct an adequate investigation and lacked a reasonable basis for optimistic statements in the offering materials given known red flags.
- The court upheld the SEC’s finding that Dolphin at least acted negligently for purposes of Securities Act § 17(a)(2) and sustained related antifraud conclusions.
- The court upheld the cease-and-desist order, civil penalties, and suspensions as within the SEC’s remedial discretion and supported by the seriousness of the misconduct.

## Legal Principles

- Information is material if there is a substantial likelihood a reasonable investor would view it as significantly altering the total mix of information available.
- Underwriters in municipal securities offerings must conduct a reasonable investigation and have a reasonable basis for material statements in offering documents; they may not ignore known warning signs.
- Negligent conduct can support liability under Securities Act § 17(a)(2) for materially misleading statements or omissions in the offer or sale of securities.
- On judicial review of SEC administrative orders, factual findings are upheld if supported by substantial evidence; sanctions are upheld unless arbitrary, capricious, or an abuse of discretion.

## Conclusion

The D.C. Circuit upheld the SEC’s determination that a municipal bond underwriter violated federal antifraud provisions by failing to investigate and clearly disclose known uncertainties bearing on a revenue-backed project’s viability, and it sustained the SEC’s remedial sanctions under deferential standards of review.


Dolphin & Bradbury, Inc. v. SEC, 512 F.3d 634 (D.C. Cir. 2008)