Yesterday, the Securities and Exchange Commission (SEC) announced it could decide to weigh in on the State of California issuing IOUs to pay certain debts.

As we indicated earlier in the week, there was the potential for California’s IOUs to be traded similar to other securities. As such, the SEC would potential need to provide some fraud protection for recipients of the IOUs.

IOUs are obstensively municipal securities, and if municipal securities dealers are involved in the sale and trading or make a market in such, the IOUs would have to be registered and would be subject to federal anti-fraud rules.

If the IOUs are to be under the similar rule, we suspect that the financial institutions such as (but not limited to) Citigroup (C), Bank of America (BAC), JPMorgan Chase (JPM) and Wells Fargo (WFC) that stated they would not accept California’s IOUs beyond July 10, 2009 might change their minds.

In addition, the Municipal Securities Rulemaking Board (which regulates trading in muni bond debt) indicated it was of a similar mind-set earlier in the week.
Read the full analyst report on “C”
Read the full analyst report on “BAC”
Read the full analyst report on “JPM”
Read the full analyst report on “WFC”
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