## Facts

- A Pennsylvania school district issued $9.6 million of three-year general obligation notes in June 2000.
- The offering materials stated that proceeds would fund school renovation and construction projects and that interest on the notes was expected to be exempt from federal income tax.
- Ira Weiss served as bond counsel and delivered an unqualified opinion that interest on the notes would be federally tax-exempt; he also stated he was not aware of material misstatements in the offering materials.
- The school board had not finalized project plans, cost estimates, or schedules; a key objective was to invest proceeds at higher yields to earn arbitrage profits.
- Weiss prepared closing documents, including a tax certificate asserting the notes were “non-arbitrage” obligations, relying on proposed projects that lacked concrete timing and cost support.
- After issuance, the district invested proceeds in higher-yielding securities and earned about $225,000 in arbitrage profits; capital spending and project authorization lagged for many months.
- The IRS later determined the notes were taxable because the district failed to satisfy federal tax requirements for tax-exempt obligations, including requirements tied to spending expectations and arbitrage limitations.
- The SEC brought an administrative enforcement action against Weiss alleging antifraud violations based on misstatements and omissions about use of proceeds and tax-exempt status; an ALJ dismissed the charges after hearing.
- The SEC Division of Enforcement appealed, and the Commission conducted an independent review.

## Issues

1. Whether Weiss, as bond counsel, violated Securities Act § 17(a)(2) or § 17(a)(3) by negligently making material misstatements or omissions in connection with the offering regarding tax-exempt status and use of proceeds.
2. Whether Weiss violated Securities Act § 17(a)(1), Exchange Act § 10(b), or Rule 10b-5, which require scienter.
3. Whether Weiss caused the issuer’s violations and what remedial relief was appropriate.

## Decision

- The Commission reversed the ALJ in part and found Weiss violated Securities Act § 17(a)(2) and § 17(a)(3) based on negligent misstatements and omissions.
- The Commission did not sustain scienter-based charges under Exchange Act § 10(b), Rule 10b-5, or Securities Act § 17(a)(1).
- The Commission ordered Weiss to cease and desist from committing or causing violations of Securities Act § 17(a)(2) and (3).
- The Commission ordered disgorgement of $9,509.63 plus prejudgment interest, reflecting fees attributable to the transaction.

## Legal Principles

- Securities Act § 17(a)(2) and § 17(a)(3) permit antifraud liability based on negligence; scienter is not required.
- Statements that municipal securities will bear tax-exempt interest, and representations about use of proceeds, are material to reasonable investors and must have an adequate factual basis.
- A bond counsel’s unqualified tax opinion, when highlighted to investors, can be a materially misleading statement if issued without due care in assessing whether tax-exemption requirements are reasonably expected to be met.
- Professional role matters: when facts indicate tax-compliance risk (e.g., lack of concrete project plans and delayed spending while pursuing arbitrage), counsel must investigate, qualify the opinion, or ensure material risks are disclosed.

## Conclusion

The SEC held that bond counsel negligently misled investors by providing an unqualified tax-exemption opinion and supporting offering representations about capital-project use of proceeds without sufficient factual support, warranting a cease-and-desist order and disgorgement of related fees.


In re Ira Weiss, Securities Act Release No. 8641, Exchange Act Release No. 52875 (S.E.C. 2005)