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U.S. securities regulators, under pressure from Congress to prevent a repeat of the financial debacles witnessed in municipalities like Detroit and Jefferson County, Ala., are set to propose a series of rules to rein in advisers that help states and localities raise cash in the $3.7 trillion municipal-bond market, the Wall Street Journal reported today. The Municipal Securities Rulemaking Board, a self-regulator for the muni-bond market, is expected this week to propose the first of a long-delayed set of rules for municipal advisers aimed at better protecting taxpayers from the types of complex transactions that soured during the financial crisis. Many unsophisticated local governments didn't fully understand those transactions, which primarily involved so-called interest-rate swaps to hedge against higher borrowing costs. The advisers targeted by the rules are firms, sometimes affiliated with banks, hired to work with states and localities to time, market and price municipal-bond deals and related transactions. But most advisers are unaffiliated with banks and were previously unregulated. Lawmakers and regulators say they pushed to increase oversight of municipal advisers in the wake of tumult in localities like Jefferson County, where officials and Wall Street firms repeatedly used interest-rate swaps as a vehicle for kickbacks and other types of fraud. The 2010 Dodd-Frank financial law requires the advisers to register with the Securities and Exchange Commission and adhere to MSRB rules.

Detroit Emergency Manager Kevyn Orr has frozen the pension fund for some of the city's workers, replacing it with a 401k-type plan, according to an executive order obtained by Reuters yesterday. The pension freeze, which took effect on Dec. 31, only affects Detroit's General Retirement System, which covers non-public safety workers. The action closes the pension fund to any new or rehired employees and freezes benefit accruals for current workers. It also stops worker contributions to the pension and annuity savings funds and ends cost-of-living adjustments for pension payments made to retirees. As of Jan. 1, the order created a defined contribution plan for affected workers.

Detroit Emergency Manager Kevyn Orr testified that the city asked a U.S. regulator to consider bringing charges against two banks for costly interest-rate swaps that factored in the city's record-setting municipal bankruptcy case, Reuters reported on Friday. Orr said that Detroit asked the U.S. Securities and Exchange Commission to investigate its deals with UBS AG and Merrill Lynch Capital Services, a unit of Bank of America , for interest rate swaps to hedge risk on some of the $1.4 billion of pension debt Detroit sold in 2005 and 2006. The city thought there were "serious questions" about whether it owed the banks anything at all, Orr testified, and Detroit weighed trying to invalidate the swaps. But officials decided chances of prevailing in court were only "more or less 50/50," so it decided to bargain with the banks instead. Orr testified before Bankruptcy Judge Steven Rhodes at a hearing about a Christmas Eve deal to end the swap agreements for $165 million plus fees. That represents a 43 percent discount for Detroit, steeper than one initially proposed. Judge Rhodes, who is overseeing Detroit's bankruptcy case, sent the city and the banks back to the bargaining table after postponing a hearing about the earlier deal to terminate the swaps for $230 million, or 75 cents on the dollar.

Several major creditors are expected to contest a new settlement between Detroit and two global banks to pay off a disastrous debt deal when a trial over the proposed settlement resumes today, the Detroit Free Press reported today. The city agreed on Dec. 24 to a new settlement with UBS and Bank of America Merrill Lynch to pay off a pension debt interest-rate transaction called “swaps” with $165 million in newly borrowed cash. The new deal, brokered in a federal mediation session with U.S. District Chief Judge Gerald Rosen, amounted to a $65 million discount over a previous settlement of $230 million. The original swaps settlement collapsed last month after Bankruptcy Judge Steven Rhodes questioned the city’s decision to pay $230 million to settle the $293 million swaps transaction, suggesting that he deal might be too generous to the banks. Bond insurer Ambac Assurance, which has been arguing for months that the swaps transaction was illegal and the settlement was a bad deal, yesterday filed a fresh objection to the new settlement.

Tucked away in a river bend behind a curtain of redwood trees, Scotia is an old-fashioned company town with a contemporary twist: The company that owns the town is a New York hedge fund, Dow Jones Daily Bankruptcy Review reported today. Marathon Asset Management, with roughly $11 billion under management, was not looking to be the owner, but in 2008, a bankruptcy court awarded ownership of Scotia, including its 272 homes, two churches, a hotel and several commercial buildings, to Marathon, which was a big creditor of the timber company that previously owned the town. Now, Marathon faces the prospect of spending another five years or more unloading this most illiquid of investments.

The mediators who oversaw negotiations between Detroit and two banks to strike a deal to end a costly interest-rate swap agreement recommended yesterday that the judge in charge of Detroit's bankruptcy approve the agreement, arguing that the deal is a critical first step toward resolving the historic case, Reuters reported yesterday. The city struck a deal with UBS AG and Bank of America Corp's Merrill Lynch Capital Services on Dec. 24 to end the interest-rate swap agreements at a 43 percent discount. The negotiations happened after Bankruptcy Judge Steven Rhodes, who is overseeing the case, encouraged Detroit to negotiate better terms for the deal. Judge Rhodes still must approve the agreement and he will hold a hearing on Jan. 3 to consider the arrangement.

The city of Miami lost a court bid to dismiss a U.S. Securities and Exchange Commission lawsuit alleging that it engaged in securities fraud in municipal bond offerings by exaggerating the health of its general fund, Bloomberg News reported yesterday. The regulator’s claims over three 2009 bond offerings totaling $153.5 million are sufficient to go to trial, U.S. District Judge Cecilia Altonaga ruled on Dec. 27. She rejected the city’s argument that the SEC failed to properly lay out its claims and link them to factual events. The SEC sued the city of Miami and an ex-budget director, Michael Boudreaux, in July, alleging that they lied to investors about the details of transfers of millions of dollars from Miami’s capital improvement and development funds to the city’s general fund. The case is part of a three-year crackdown on state and local governments for not providing bond investors with accurate information about pension liabilities. Illinois and New Jersey settled with the agency after similar investigations.

The attorney who filed a now-defunct bankruptcy petition for the city of Harrisburg, Pa., sued the city and some of its officials on Friday for $289,000 plus interest for allegedly not paying him for the job, Reuters reported. Mark Schwartz sued the city, which recently closed on the sale of its incinerator and a deal to lease parking lots in order to erase $360 million in debt that kept the city teetering near insolvency. Schwartz also sued City Council President Wanda Williams and three other officials in the Court of Common Pleas for Dauphin County. The City Council retained him to file its chapter 9 municipal bankruptcy in October 2011, but the case was thrown out the next month after state lawmakers barred it. Since then, Schwartz hasn't been paid for any of his fees or expenses, he stated in the suit. Pennsylvania sold nearly $289 million of parking revenue bonds on Dec. 17 as part of the parking garage deal.

Detroit's two pension funds have asked the U.S. Court of Appeals for the Sixth Circuit to hear an expedited appeal of a judge's ruling that the city is eligible for bankruptcy protection, Reuters reported on Friday. The General Retirement System and the Police and Fire Retirement System, Detroit's two largest unsecured creditors, filed the appeal with the Sixth Circuit on Thursday. The expedited appeal would bypass the U.S. District Court for the Eastern District of Michigan. Earlier this month, Bankruptcy Judge Steven Rhodes ruled that Detroit met the federal requirements for bankruptcy because the city, with $18.5 billion in debt, was insolvent and could not negotiate with all of its creditors. Judge Rhodes also ruled that pension benefits could be cut as part of Detroit's restructuring efforts. The pension funds, and others objecting to the Detroit bankruptcy, have maintained that Michigan's constitution protects pensions from being slashed. In its appeal, the pension funds argued that Detroit's plan to cut pensions could set a precedent and cause other troubled U.S. cities to also cut pension benefits as a way to reduce debt.

The city of Detroit reached an agreement on Tuesday with two banks to end a costly interest-rate swap agreement, a significant step as the city negotiates with creditors to put together a plan to exit the largest municipal bankruptcy in U.S. history, Reuters reported yesterday. Detroit will pay $165 million, plus up to $4.2 million in costs, to end the interest-rate swap agreements with UBS AG and Bank of America Corp.’s Merrill Lynch Capital Services at a 43 percent discount. The new agreement, which was reached after Bankruptcy Judge Steven Rhodes asked the city to negotiate better terms than it first proposed, will save the city about $65 million. As part of the arrangement, Detroit will also take out a $285 million loan from Barclays PLC to pay to end the swaps. It will use $120 million of that toward improvements to services in the city, which is hampered by $18.5 billion in debt.