On March 10, 2014, the Securities and Exchange Commission (“SEC”) announced a program called the Municipalities Continuing Disclosure Cooperative Initiative (“MCDC Initiative”). The MCDC Initiative is intended to address potentially widespread violations of the federal securities laws by municipal issuers, including obligated persons (collectively referred to herein as “Issuers”), and underwriters of municipal securities in connection with certain representations about continuing disclosures in bond offering documents. Under the MCDC Initiative, Issuers and underwriters of municipal securities may voluntarily report to the SEC materially inaccurate statements made in offering documents concerning an Issuer’s prior compliance with its continuing disclosure obligations. For example, if an Issuer failed to file an annual report in 2010, but in an offering document issued in 2011 the same Issuer makes the statement that it has complied with its continuing disclosure obligations in all material respects, the SEC may allege that the Issuer has made a materially inaccurate statement in the offering document. Issuers that may have made materially inaccurate statements in offering documents regarding their prior continuing disclosure compliance and underwriters of such offerings may participate in the MCDC Initiative by completing a questionnaire and submitting it to the SEC no later than September 9, 2014.
Under the MCDC Initiative, the Enforcement Division of the SEC will recommend “favorable settlement terms” to Issuers upon self-reporting of such possible violations, and will recommend not imposing a financial penalty against self-reporting Issuers. Issuers will, however, be required to take remedial actions including:
The Enforcement Division has indicated that the remedies it seeks will be more severe for eligible Issuers who fail to self-report through the MCDC Initiative. The Enforcement Division has stated that it will likely recommend financial penalties for such non-reporting Issuers.
The MCDC Initiative covers only eligible Issuers and underwriters. The Division has provided no assurance that individuals associated with those entities, such as municipal officials, will be offered similar terms if they are found to have engaged in violations of the federal securities laws.
Issuers who may have made materially inaccurate statements in an offering document regarding their prior compliance with continuing disclosure obligations should consider self-reporting to the Division to take advantage of the MCDC Initiative.
Underwriters may also take advantage of the MCDC Initiative. This may put Issuers at odds with their underwriters if one party takes advantage of the MCDC Initiative but the other does not. The SEC will likely focus on the party that did not take advantage of the MCDC Initiative. As a result, Issuers and underwriters who wish to take advantage of the MCDC Initiative should consider contacting the other parties involved to discuss possibly making a joint disclosure to the SEC.
Further information about the MCDC Initiative is available here.
For more information about the MCDC Initiative, please contact Peter T. Edelman at 610.478.2168, Ramiro M. Carbonell at 610.478.2275, Brian P. Koscelansky at 570.969.5364.
This News Alert has been prepared for informational purposes only and should not be construed as, and does not constitute, legal advice on any specific matter. For more information, please see the disclaimer.
