The Securities and Exchange Commission yesterday announced it would not take action against those who helped sell billions of dollars worth of New York City securities just prior to the city's financial downfall -- sales which, the SEC had earlier charged, took advantage of a misinformed public and which contributed to the city's subsequent financial crisis.

Instead, the commission said it would recommend legislation to "correct deficiencies" in the municipal securities market.

The announcement marked the end of the SEC's two-year investigation into securities transactions that prompted the collapse of New York City's ability to raise funds in private capital markets in March 1975. By the following November, the city found it could not meet all its debt obligations.

In August 1977, the SEC issued a report highly critical of those who helped underwrite the $4 billion in short-term bonds the city issued just before the capital markets were closed to it. The bonds eventually caused the market for New York securities to become saturated.

Those specifically singled out for blame by the SEC included the principal underwriters, bond counsel and the rating agencies. The commission also criticized city officials for using accounting practices that distorted New York's true financial condition.

In its final report yesterday, the SEC cited a number of reasons for its decision not to bring an enforcement action against any of the parties, including a change in city administration and the enactment since of various remedial actions. Also, the SEC said such legal action would cost more than it would be worth.

"(Any) enforcement action, which could well be protracted," the commission said, "would have limited additional remedial value and would require the commitment of substantial additional resources which... can be otherwise utilized more efficiently in discharging the commission's responsibilities."

The commission's report said the deficiencies uncovered in the New York investigation are "symptomatic of the inadequacies of the existing statutory framework which leaves municipal securities disclosure largely unregulated."

Highlighting a number of voluntary efforts at reform, the SEC said more comprehensive and steadfast legislation is nonetheless needed to guarantee the honesty and accuracy of municipal securities markets.

The SEC singled out as "the most critical deficiency" in existing practice the area of municipal accounting and financial reporting.

"The financial and disclosure problems experienced by a number of municipalities and highlighted by New York City's crisis," said the commission's report, "suggest that there is a critical need to assure greater accuracy and uniformity in municipal accounting and financial reporting. The Commission believes legislation designed to standardize the methods used in the preparation of municipal accounts and the form and context of municipalities' financial statements should be accorded the highest legislative priority."

The report also endorsed an improved disclosure system to provide more complete and honest information on municipal securities to investors.