The Securities and Exchange Commission has taken the unusual step of placing the city on notice and to warn city officials that statements made to the public will be scrutinized, The Wall Street Journal reported Tuesday.
"Public officials should take steps to avoid misleading investors," said Elaine Greenberg, chief of the SEC's Municipal Securities and Public Pensions division.
The SEC said Harrisburg did not file financial information or audited financial report between January 2009 and March 2011," the Journal said.
"Harrisburg's financial information and notices available to the market were incomplete and outdated," the SEC said.
At one point, the city's budget said that Moody's Investors Service had given the city an Aaa credit rating, when, in fact, it had been downgraded to Baa1.
The city took about 11 months to disclose the downgrade.
Harrisburg, the Pennsylvania state capital, has been in financial difficulty for years with much of the trouble traced to a public incinerator project that cost more than expected. The city was on the brink of bankruptcy in 2011, when the state appointed a receiver to help turn the city's financial troubles around.
But if the SEC wants to go after fraud in the municipal debt market, it could have its hands full, one market analyst said.
"This isn't just Harrisburg. There are lots more issuers like it," said Fundamental Advisors Chairman and Chief Executive Officer Laurence Gottlieb.
Some analysts are saying that as many as a fifth of the 50,000 issuers of municipalities' debt don't submit financial reports in a timely fashion.