Issuers of municipal securities (including conduit borrowers) are required to comply with certain disclosure requirements when preparing official statements or other offering documents, submitting continuing disclosure documents and making other statements that are reasonably anticipated to reach the securities market and investors. In preparing these disclosures, issuers need to carefully consider federal securities laws, which prohibit issuers from making untrue statements of material fact or omitting to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. Even if the issuer does not intentionally or recklessly make a material misstatement or omission, the Securities and Exchange Commission (the “SEC”) may bring an enforcement action against an issuer for negligence if it determines that the issuer failed to use reasonable care when making disclosures.
In order to assist issuers with their disclosure requirements, the National Association of Bond Lawyers (the “NABL”) recently released a paper that provides guidance to issuers on establishing written disclosure policies.1 The NABL paper discusses some of the advantages and disadvantages of such policies and provides general guidance, as well as sample provisions to consider, in establishing such policies. The NABL paper notes that such written policies may help issuers avoid SEC enforcement action by documenting disclosure processes in the event that issuers must prove that they exercised reasonable care in making a disclosure. In recent years, the SEC has required some issuers to create written disclosure policies as part of the SEC’s settlement process after a disclosure violation had occurred.
The NABL paper acknowledges that disclosure policies for issuers are not “one size fits all,” and each issuer’s policies need to be appropriate for its particular situation. The NABL paper considers, among other things, the common elements of good disclosure policies. In general, these elements include:
- Identification of the types of disclosures covered by the policy;
- Explanation of the processes that the issuer uses to prepare its disclosures and the processes to demonstrate each such disclosure’s compliance with the issuer’s policy;
- Examination of the role of the issuer’s various officers or employees (as well as the issuer’s governing body) in the disclosure process and the creation of a system where such officers or employees are adequately supervised and duties appropriately apportioned among such officers or employees; and
- Explanation of the process for educating applicable officers or employees regarding their duties under securities laws and under the issuer’s disclosure policy, including provisions for specific training of individual officers or employees.
Some issuers may already have written disclosure policies, and some issuers may follow a more informal disclosure process. If you are interested in evaluating, establishing or updating your disclosure policies and would like further information about the NABL paper or would like our assistance with the preparation of such policies, please feel free to contact one of the members of our Public Finance Team.