Securities and Exchange Commission v. GLT Dain Rauscher, Inc.
United States Court of Appeals for the Ninth Circuit
254 F.3d 852 (9th Cir. 2001)
Dain Rauscher banker Ough (defendant) underwrote nine municipal-note offerings whose proceeds were funneled into Orange County investment pools managed by treasurer Citron for interest-rate arbitrage, without disclosing that arbitrage use in the final offering statements; Ough relied only on the county treasury's own statements and Citron's reputation, never personally reviewing the investment pools or discussing strategy with Citron, and when interest rates rose in 1994, the pools suffered massive losses leading to Orange County's bankruptcy. The SEC (plaintiff) sued Ough for securities-law violations, and the district court granted him summary judgment.
Whether reasonable prudence is the applicable standard of conduct for underwriters participating in offerings of taxable municipal bonds.