The SEC’s Office of Municipal Securities has, across speeches and enforcement activity, treated conduit bonds and Joint Powers Authority (JPA) oversight as a sustained supervisory concern. That regulatory posture does not, by itself, give an individual investor a remedy — but where a loss followed a broker-dealer’s recommendation, the operative question is whether the firm met its Regulation Best Interest (Reg BI) Care and Disclosure obligations under Rule 15l-1, 17 C.F.R. § 240.15l-1. This analysis explains the conduit-bond risk structure, the SEC’s enforcement record, and the individual Financial Industry Regulatory Authority (FINRA) arbitration pathway for investors who lost money after a recommendation.
Key Takeaways
- In public remarks — and as reported by trade press — Dave Sanchez, Director of the SEC’s Office of Municipal Securities, has identified conduit issuance and JPA oversight, rather than traditional government debt, as the concentration point for municipal defaults.
- JPAs account for a disproportionate share of municipal bond defaults, and SEC scrutiny of these entities has been a recurring theme in public remarks.
- The SEC has signaled that governments which create JPAs and then fail to oversee them could themselves face scrutiny.
- Varnavides Law founder Gary Varnavides raised these concerns in his February 2026 Municipal Securities Rulemaking Board (MSRB) Rule D-15 comment letter, consistent with the regulatory record Sanchez has built.
- Investors who lost money on conduit bonds after a broker-dealer recommendation may have claims in individual FINRA arbitration against the recommending firm — analyzed below under the correct post-2020 legal standard, Reg BI, which is Rule 15l-1, 17 C.F.R. § 240.15l-1, and requires a broker-dealer to act in the retail customer’s best interest through its Care Obligation and Disclosure Obligation.
The SEC’s Public Focus on Conduit Bonds
For years, conduit bonds occupied a less-scrutinized corner of the municipal securities market. Issued through governmental entities but backed by private-sector borrowers, these instruments carry credit risk that many retail investors do not fully appreciate. The SEC’s Office of Municipal Securities has made conduit oversight a recurring public theme.
Dave Sanchez, Director of the SEC’s Office of Municipal Securities, has made conduit oversight a recurring subject in his public remarks. In his speech “Joint Powers Authorities and Other Topics for Market Participants,” delivered at the California Bond Buyer Conference in San Francisco on October 24, 2024 (SEC speech, Oct. 24, 2024), Sanchez devoted substantial attention to the risks JPAs and conduit structures pose to the municipal market.
As reported by trade press covering Sanchez’s subsequent 2025 remarks to the Government Finance Officers Association, Sanchez has reportedly warned that unaddressed conduit and JPA oversight problems could provoke a broadly felt regulatory response and has reportedly described conduits — rather than “true governments” — as the common factor in municipal defaults. We attribute that characterization to contemporaneous trade-press coverage rather than to a verbatim SEC transcript, because the SEC has not published a single transcript containing that exact phrasing. The substance — SEC concern that lax conduit and JPA oversight could draw a regulatory response — is consistent across Sanchez’s public record.
What Are Conduit Bonds and Why Do They Default More Often?
Conduit bonds are municipal securities issued by a governmental entity — such as a city, county, or joint powers authority — on behalf of a private-sector borrower. The governmental entity serves as a pass-through, or “conduit,” lending its tax-exempt borrowing authority to the private borrower. Critically, the governmental issuer typically has no obligation to repay bondholders if the private borrower defaults.
Why conduit defaults matter: The SEC’s investor bulletin “Municipal Bonds — Asset Allocation, Diversification, and Risk” (SEC Office of Investor Education and Advocacy) explains that conduit revenue bonds issued for non-governmental purposes — including multi-family housing, healthcare facilities, and industrial development projects — carry distinct credit risk because repayment generally depends on the private borrower, not the governmental issuer.
This structural feature means investors bear significantly more credit risk than they would with general obligation bonds or essential-service revenue bonds. Published analyses of municipal default data have reported on the order of dozens of monetary defaults in recent years across a market of more than 37,000 issuers, with defaults concentrated in nursing homes, industrial development bonds, charter schools, and single-site housing projects — all sectors dominated by conduit issuance. We present these as reported figures; the precise count varies by data source and reporting period and should be treated as an estimate rather than an official tally.
JPAs: The Conduit Issuers Drawing the Most SEC Attention
Among conduit issuers, JPAs have drawn particular attention from the SEC’s Office of Municipal Securities. JPAs are entities formed when two or more governmental bodies agree to jointly exercise shared powers. In California, JPAs have become prolific issuers of conduit debt, particularly in the affordable and essential housing space.
In his October 2024 California Bond Buyer Conference remarks, Sanchez raised the concern that some governmental entities have effectively delegated conduit-bond issuance to privately run entities that are among the leading issuers of defaulted bonds, with limited ongoing input from the member government agencies. In his framing, the risk is that JPAs operate with insufficient oversight from the governments that created them.
JPA Oversight Gaps (as described in SEC remarks)
- California JPAs are formed under the Joint Exercise of Powers Act (Cal. Gov. Code §§ 6500–6536), but the member governments may not exercise ongoing oversight of issuance
- JPA management may be incentivized toward bond-issuance volume
- Material information may not reach investors as required by the federal securities laws
- State-level supervision of JPAs is limited
Potential Investor Impact
- Conduit bonds issued through JPAs have defaulted at higher rates than other municipal securities
- Investors may not understand the governmental “issuer” has no repayment obligation
- Disclosure quality for JPA-issued bonds is often a concern raised by regulators
- Recovery rates on defaulted conduit bonds can be substantially lower than for governmental issuers
Sanchez’s Public Record: A Timeline
The SEC’s public concerns about conduit bonds and JPAs have built over time through speeches and enforcement activity.
| Date | Event | Substance (as documented) |
|---|---|---|
| October 24, 2024 | California Bond Buyer Conference, San Francisco | Speech “Joint Powers Authorities and Other Topics for Market Participants” — extended treatment of JPA and conduit oversight risk (SEC published speech) |
| Mid-2025 | Government Finance Officers Association remarks | Per Bond Buyer reporting, identified conduits rather than “true governments” as the default concentration point and warned of a potential broadly felt regulatory response |
| May 30, 2025 | Agentis Capital Advisors order | Per the SEC’s order, the SEC settled charges for unregistered municipal advisor activity; Exchange Act § 15B(a)(1)(B) (15 U.S.C. § 78o-4(a)(1)(B)) prohibits providing municipal advisory services unless registered. The firm resolved the matter by consent without admitting or denying the findings (Exchange Act Release No. 34-103154) |
| January 2026 | Joint Compliance Outreach Program | Per trade-press reporting, SEC remarks emphasizing technology-enabled pricing surveillance; the SEC has not published a verbatim transcript of these remarks |
The through-line across these events is consistent: the SEC’s Office of Municipal Securities views conduit issuance — and the oversight of JPAs in particular — as an area of supervisory concern.
A February 2026 Comment Letter Reinforces the SEC’s Concerns
On February 2, 2026, Varnavides Law founder Gary Varnavides submitted a formal comment letter to the MSRB regarding proposed amendments to MSRB Rule D-15 (the MSRB’s definition of “sophisticated municipal market professional”). While the letter addressed whether certain SEC-registered investment advisers should be treated differently under MSRB oversight, it also spotlighted broader systemic risk in the conduit bond market — consistent with the concerns the SEC’s Office of Municipal Securities has raised publicly.
The comment letter highlighted:
- The rapid proliferation of JPA and conduit debt in California, particularly through entities such as the California Statewide Communities Development Authority (CSCDA)
- Reported defaults among California JPA housing projects. The letter described a meaningful share of California JPA essential-housing projects as reportedly in default at the time of writing. We attribute this characterization to the comment letter itself; it reflects the author’s analysis and is not drawn from a published SEC or MSRB default tally.
- The argument that reducing oversight would move regulation in the wrong direction at a time when the conduit market is becoming more complex
Why Gary’s perspective matters: Before founding Varnavides Law, Gary spent 10 years at Sichenzia Ross Ference LLP defending broker-dealers in securities matters. That background gave him direct insight into how disclosure and oversight failures lead to investor harm. He now represents investors exclusively. His February 2026 MSRB comment letter reflects an informed view of where municipal bond losses are likely to originate.
SEC Municipal Enforcement Activity: The Agentis Capital Action and Reported Trends
As reported by trade press covering SEC municipal enforcement activity in 2025, municipal securities enforcement actions reportedly fell to a multi-year low, with the decline attributed to leadership transitions and staffing changes. We present this as reported by trade press; the SEC does not publish a single consolidated “municipal enforcement count” document, so any specific figure should be treated as a reported estimate rather than an official SEC tally.
One documented action in that period is the Agentis Capital matter, discussed below.
Technology-Driven Surveillance
In January 2026 Joint Compliance Outreach remarks, Sanchez noted that technology is making it easier to track municipal pricing and that regulators expect to use that data. Enhanced analytics let the SEC identify problematic patterns in conduit pricing and disclosure more efficiently.
Documented Case Activity
The SEC’s settled order dated May 30, 2025 against Agentis Capital Advisors addressed acting as an unregistered municipal advisor in connection with municipal issuances, under Exchange Act § 15B(a)(1)(B), 15 U.S.C. § 78o-4(a)(1)(B), which prohibits a municipal advisor from providing advice unless registered with the SEC (Exchange Act Release No. 34-103154). The firm resolved the matter by consent without admitting or denying the findings. This is a municipal-advisor registration matter rather than a conduit-issuer disclosure-fraud action; it is included here as part of the SEC’s broader municipal securities enforcement record.
High-Profile Market Losses
Losses such as the Easterly ROCMuni fund collapse, in which the fund reportedly lost roughly half its value, have increased public attention on conduit and JPA-issued bond risk. No SEC enforcement action against that fund is alleged or implied.
What SEC Conduit Bond Enforcement Could Look Like
Based on the SEC’s public statements and documented enforcement activity, several theories could appear in conduit-related actions:
- Disclosure failures by conduit issuers: Conduit issuers (including JPAs) that fail to provide accurate, timely disclosure could face proceedings under the substantive anti-fraud prohibition of the federal securities laws, principally Exchange Act § 10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 thereunder (17 C.F.R. § 240.10b-5), which together prohibit material misstatements and manipulative conduct in connection with the purchase or sale of a security; and Securities Act § 17(a) (15 U.S.C. § 77q(a)), which prohibits fraud in the offer or sale of securities.
- Unregistered municipal advisor activity: Firms or individuals providing municipal advisory services without registration — conduct that Exchange Act § 15B(a)(1)(B), 15 U.S.C. § 78o-4(a)(1)(B), prohibits unless the advisor is registered with the SEC — as in the Agentis Capital matter — remain an enforcement focus.
- Oversight by creating governments: Sanchez has publicly raised the possibility that governments which form JPAs and then fail to oversee them could face scrutiny where that failure contributes to material information not reaching investors.
- Broker-dealer conduct in selling conduit bonds: A firm that recommends a conduit bond to a retail customer without a reasonable basis or without disclosing the conduit structure’s distinct risks may face regulatory exposure — analyzed under the correct standard below.
The Correct Legal Standard for Broker-Dealer Conduct: Reg BI (Rule 15l-1)
Reg BI is Rule 15l-1, 17 C.F.R. § 240.15l-1, and it requires a broker-dealer to act in the retail customer’s best interest through its Disclosure Obligation and Care Obligation.
For recommendations made to retail customers on or after June 30, 2020, the operative standard governing broker-dealer conduct is Reg BI, Rule 15l-1, 17 C.F.R. § 240.15l-1 (17 C.F.R. § 240.15l-1). Reg BI (Rule 15l-1) is the operative retail standard; FINRA amended Rule 2111 (per FINRA Regulatory Notice 20-18) so that it does not apply to recommendations subject to Rule 15l-1, but Rule 2111 was not repealed — it retains a carve-out and still governs recommendations outside Rule 15l-1’s retail-customer scope, including recommendations to institutional and other non-retail customers. For recommendations made before June 30, 2020, FINRA Rule 2111’s suitability standard remains the operative framework — investors with losses from pre-2020 recommendations should discuss which standard applies with a securities attorney.
Under Rule 15l-1, the overarching best-interest duty is stated at 17 C.F.R. § 240.15l-1(a)(1); it is satisfied through four component obligations at 17 C.F.R. § 240.15l-1(a)(2):
- Disclosure Obligation (17 C.F.R. § 240.15l-1(a)(2)(i)): written disclosure of the relationship, material fees and costs, and material conflicts of interest
- Care Obligation (17 C.F.R. § 240.15l-1(a)(2)(ii)): reasonable diligence, care, and skill to understand the recommendation’s risks, rewards, and costs; a reasonable basis to believe it is in the retail customer’s best interest in light of the customer’s investment profile; and that a series of recommended transactions, even if each is in the customer’s best interest in isolation, is not excessive and is in the retail customer’s best interest when taken together
- Conflict of Interest Obligation (17 C.F.R. § 240.15l-1(a)(2)(iii)): policies to identify and address conflicts
- Compliance Obligation (17 C.F.R. § 240.15l-1(a)(2)(iv)): written policies reasonably designed to achieve Rule 15l-1 compliance
A retail customer who was recommended a conduit bond without the firm meeting these Rule 15l-1 obligations — for example, where the distinct risk that the governmental issuer has no repayment obligation was not adequately addressed — may have a claim against the recommending broker-dealer. This implicates the Disclosure Obligation (17 C.F.R. § 240.15l-1(a)(2)(i)) and Care Obligation (17 C.F.R. § 240.15l-1(a)(2)(ii)) under the best-interest standard of 17 C.F.R. § 240.15l-1(a)(1), not a general “fiduciary duty” claim: a broker-dealer making a recommendation to a retail customer is governed by Rule 15l-1’s best-interest standard, not by the Investment Advisers Act fiduciary standard under Advisers Act § 206 (15 U.S.C. § 80b-6), which applies to investment advisers. We do not characterize broker-dealer conduct here as a breach of fiduciary duty, because that overstates the applicable standard for a broker-dealer recommendation. Reg BI (Rule 15l-1, 17 C.F.R. § 240.15l-1) does not itself supply a private right of action; in FINRA arbitration, a failure to meet the Care or Disclosure obligations is offered as evidence of the standard the firm failed to meet, supporting common-law and FINRA-rule claims such as negligence and misrepresentation.
What This Means for Investors Holding Conduit Bonds
If you hold municipal bonds issued through a JPA, conduit issuer, or other special-purpose entity, several steps are worth taking.
Review Your Holdings
Determine whether any positions are conduit bonds rather than general obligation or essential-service revenue bonds. Brokerage statements may not make this distinction clear. Check the official statement or EMMA (the MSRB’s Electronic Municipal Market Access system at emma.msrb.org) for the issuer and security structure.
Assess Disclosure Quality
Determine whether you received adequate ongoing disclosure about the conduit borrower’s financial health and whether the issuer is filing continuing disclosure as required. Gaps can signal deeper problems.
Evaluate How You Were Sold the Bond
Consider whether the recommending firm explained that the governmental issuer has no obligation to repay if the private borrower defaults, and whether the conduit structure’s distinct risks were disclosed. Under Reg BI (Rule 15l-1, 17 C.F.R. § 240.15l-1), a retail recommendation must satisfy the Care Obligation (17 C.F.R. § 240.15l-1(a)(2)(ii)) and Disclosure Obligation (17 C.F.R. § 240.15l-1(a)(2)(i)) described in the Reg BI analysis above.
Understand Your Legal Options
An investor who lost money following a broker-dealer’s recommendation may have an individual claim against that firm through FINRA arbitration. FINRA arbitration is generally available against FINRA member firms and their associated persons — not against conduit issuers, JPAs, or municipal entities, which are not FINRA members — subject to FINRA Rule 12206’s eligibility period, which bars claims submitted to arbitration more than six years after the event giving rise to the claim (an eligibility rule, distinct from a statute of limitations). Claims against the recommending firm typically sound in negligence, misrepresentation of the bond’s credit characteristics, or breach of applicable FINRA conduct rules, with a failure to meet Reg BI’s Care obligation (Rule 15l-1, 17 C.F.R. § 240.15l-1(a)(2)(ii)) or Disclosure obligation (17 C.F.R. § 240.15l-1(a)(2)(i)) offered as evidence of the standard the firm failed to meet. Investors may also have potential claims against conduit issuers or underwriters in court under Exchange Act § 10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 (17 C.F.R. § 240.10b-5), or under state-law theories, depending on the facts; a securities attorney can evaluate which forum and theory fits the circumstances.
Scope note: We represent individual investors in their own FINRA arbitration claims against broker-dealers. We do not handle class actions, and the legal options described on this page concern individual investor claims against a recommending broker-dealer — not litigation against conduit issuers, JPAs, or governmental entities. Whether a claim exists depends on the specific facts; no outcome is promised.
California Investors Face Particular Exposure
California has been a focal point for JPA-issued conduit bond activity, including programs issued through entities such as CSCDA and the California Public Finance Authority. Gary Varnavides is licensed in California and New York. Because FINRA arbitration is not state-bar-bound, Varnavides Law can represent investors in FINRA proceedings regardless of where the account was held. His practice focuses exclusively on the investor side of securities disputes — he does not represent broker-dealers, issuers, or underwriters.
For more on the specific risks facing California municipal bond investors, see our analysis of JPA bond risks in California.
The Bottom Line for Conduit Bond Investors
The SEC’s Office of Municipal Securities has, across speeches and enforcement activity, treated conduit issuance and JPA oversight as a sustained supervisory concern rather than an isolated one. That regulatory posture does not, by itself, give an individual investor a remedy — the SEC’s enforcement theories run against issuers and advisors in government forums, not in FINRA arbitration. Where an investor’s loss followed a broker-dealer recommendation, however, the operative question is whether the firm met its Reg BI Care and Disclosure obligations under Rule 15l-1 (17 C.F.R. § 240.15l-1) for a structurally risky security whose governmental “issuer” bears no repayment obligation. Investors who lost money on conduit or JPA-issued bonds after a recommendation should evaluate, within FINRA Rule 12206’s six-year eligibility window, whether they hold an individual claim against the recommending firm.
Frequently Asked Questions
What is SEC conduit bond enforcement?
It refers to the SEC’s regulatory and enforcement activity addressing misconduct in the conduit municipal bond market — for example, disclosure failures by conduit issuers or unregistered municipal advisor activity. The SEC’s Office of Municipal Securities has identified conduit issuance and JPA oversight as supervisory concerns in public remarks.
Why is the SEC focused on conduit bonds specifically?
The SEC’s Office of Municipal Securities has publicly identified conduit bonds — rather than traditional government debt — as the concentration point for municipal defaults, citing higher default rates and oversight gaps among the entities that create conduit issuers.
What is a JPA and why are JPAs relevant?
A JPA is an entity formed when two or more governmental bodies agree to jointly exercise shared powers. JPAs have become prolific conduit-bond issuers, particularly in California. The SEC has expressed concern that JPAs may operate with insufficient oversight from the governments that created them.
Can investors recover losses from conduit bond defaults?
Recovery depends on whether the investor holds a claim against the recommending broker-dealer. If a broker-dealer recommended a conduit bond to a retail customer without satisfying its Reg BI obligations under 17 C.F.R. § 240.15l-1 — for example, the Care or Disclosure obligations — the investor may have an individual claim against the recommending firm through FINRA arbitration, subject to FINRA Rule 12206’s six-year eligibility period. Recovery is not available against the conduit issuer or JPA through FINRA arbitration, because those entities are not FINRA members.
What legal standard applies to a broker-dealer that recommended a conduit bond?
For recommendations to retail customers made on or after June 30, 2020, Reg BI (Rule 15l-1, 17 C.F.R. § 240.15l-1) is the operative standard and requires a broker-dealer to act in the retail customer’s best interest through its Disclosure Obligation, Care Obligation, Conflict of Interest Obligation, and Compliance Obligation. FINRA amended Rule 2111 so that it does not apply to recommendations subject to Rule 15l-1, but Rule 2111 was not repealed and still governs recommendations outside its retail scope (including non-retail recommendations) and pre-June-2020 recommendations. A broker-dealer recommendation to a retail customer is governed by the Reg BI best-interest standard (Rule 15l-1, 17 C.F.R. § 240.15l-1), not by the Investment Advisers Act fiduciary standard.
What should I do if I hold conduit bonds through a JPA?
Review the official statement and continuing disclosure filings on EMMA (emma.msrb.org), determine whether the conduit borrower is current, and assess whether the bond was recommended to you with adequate disclosure of the conduit structure. If you experienced losses following a broker-dealer recommendation, a consultation with a securities attorney can help you evaluate an individual claim.
Is this different from the Easterly ROCMuni fund situation?
Related but distinct. The Easterly ROCMuni fund lost roughly half its value and held positions in conduit and JPA-issued bonds of the type drawing SEC attention. No SEC enforcement action against the Easterly ROCMuni fund is alleged or implied here. Investors in individual conduit bonds and in funds holding them may each have separate legal considerations.
Concerned About Your Conduit Bond Holdings?
If you lost money on conduit bonds, JPA-issued municipal securities, or a municipal bond fund after a broker-dealer recommendation, Varnavides Law can evaluate your situation and explain your legal options. The firm represents investors exclusively in individual securities disputes, applying insider knowledge of how broker-dealers operate to the investor side.
