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In-house Access Insight & Commentary for In-House Counsel Worldwide

University Trustees Not “Obligated Persons” Under Dodd-Frank

Posted in Miscellaneous

Guest Bloggers: Jonathan Peri, Esq. is vice president and general counsel at Neumann University and can be reached at PeriJ@neumann.edu. Mark N. Suprenant, Esq. is the former general counsel and secretary of Wawa, Inc. and can be reached at marknsuprenant@gmail.com.

Trustees and other leaders at not-for-profit colleges and universities can breathe a sigh of relief after the Securities and Exchange Commission (SEC) issued final regulations on Sept. 18, 2013, clarifying certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In promulgating its final rule, the SEC provided a broad exemption from registration as municipal advisor for all employees, governing body members and other officials of municipal entities and “obligated persons.” The rule becomes effective on Jan. 13, 2014, although the registration exemption is only effective to the extent that the employee or governing body member is acting within the scope of his employment of official capacity.

Prior to the SEC’s ruling, the Dodd-Frank Act, which was passed in response to the financial crisis of 2008, required persons advising municipal entities or other “obligated persons” on the issuance of municipal securities (among other things) to register with the SEC. The Dodd-Frank Act defined an “obligated person” as anyone committed by contract or other arrangement to support the payment of all or a part of the municipal securities to be sold in the offering.

As a result, a not-for-profit college or university would be considered an “obligated person” if it received proceeds from an offering of securities by a government agency. The trustees and management of the “obligated person” (i.e., the educational institution) could also have been deemed to provide advice regarding the issuance of municipal securities.

While their actions will be subject to scrutiny under well-established fiduciary duty standards, trustees, employees and nonprofit academic leaders acting within the normal scope of their authority will no longer need to be concerned about being transformed into a category required to register as a municipal advisor. To that end, a nonprofit college or university trustee is safe to go back into the boardroom … at least in this case.