The investigation has sought to determine whether broker-dealers committed securities fraud and other violations of the federal securities laws or rules of the Municipal Securities Rulemaking Board.
Issuers routinely issue tax-exempt municipal bonds.
When market conditions are favorable, issuers refund outstanding municipal bonds to achieve further reductions in the payment of debt service. At the time of issuance of the refunding bonds, the old municipal bonds may not yet be subject to redemption. In this case, the issuer deposits the proceeds of the refunding bonds in an escrow held by a corporate trustee and invests the proceeds in government securities until the old municipal bonds are redeemable. For the IRS, multiple refunding issues for the same capital project are a drain on federal revenues because of the duplicative tax-exempt interest income. If the yield on the government securities is higher than the yield on the refunding bonds, the issuer will be required to take steps to assure that the overall yield on the government securities does not exceed the overall yield on the refunding bonds.