SEC Checking Into County in Arizona : Securities: Probe centers on whether investors were denied important information about the investment portfolio, paralleling concerns in O.C.

The Securities and Exchange Commission’s investigation into whether municipalities are providing proper disclosures about their financial problems and investments has expanded to Arizona’s Maricopa County, securities industry sources confirmed Tuesday.

The county that includes Phoenix is the latest target of scrutiny by the SEC, on top of its current probes of Orange County and the District of Columbia, knowledgeable officials said.

The common element in all three is an inquiry to determine if investors were denied important information about the investment portfolios, including the high-risk nature of Orange County’s securities and the severe budget difficulties in Washington and Maricopa County.

A Phoenix firm that was Maricopa County’s financial adviser when it issued bonds in 1993 confirmed a story in the Bond Buyer, a securities industry trade paper, saying the SEC had requested information about the county’s bonds and notes.

Peacock, Hislop, Staley & Given, the county’s financial adviser, said the SEC had requested information for an informal inquiry. As is their custom, SEC officials refused to confirm or deny that an investigation is underway.

However, the agency is aggressively pursuing enforcement of its disclosure rules in connection with municipal finance, one official said, noting, “The disclosure statutes are what we are all about.”

The SEC’s sharpest tool for digging into the morass in Orange County--as well as in Washington and Arizona--is a special rules interpretation that the agency issued last March insisting on full disclosure of important information.

“I don’t think we need new tools, as much as we need to utilize those we already have,” SEC Chairman Arthur Levitt told the legislative conference of the National Assn. of State Treasurers on Tuesday. He stressed that Orange County was a failure of judgment, rather than a systemic breakdown requiring new laws.

As SEC investigators poke among the financial ruins in Orange County and elsewhere, they look for failures to reveal important information.

“Certain disclosures have to be made--you can’t withhold information about the riskiness of securities being held” in local portfolios, said Micah Green, executive vice president of the Public Securities Assn., a municipal finance trade group.

The rules will become even stricter in July, when the SEC will require that municipal bond issuers promise to make regular reports disclosing their financial condition. The covenants, or detailed terms of bond issues, will be required to list the kinds of detailed information the issuer will provide on a continuing basis after the bonds have been issued.

These periodic reports would make impossible the kinds of surprises that came in the wake of Orange County’s bankruptcy, when it was disclosed that the $7-billion pool was used as leverage to invest heavily in high-risk securities. For the first time, Orange County or any other government issuing bonds will have to promise investors a flow of regular detailed information about its investment portfolio and practices.