The SEC has recently begun an in-depth review of the continuing disclosure compliance of governmental issuers. Issuers that self-report and proactively correct prior misstatements or failures to file can avoid significant civil penalties through a settlement program offered by the Enforcement Division of the SEC.
Continuing Disclosure Cooperation Initiative for Political Subdivisions
The United States Securities and Exchange Commission (“SEC”) recently developed the Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”), which is intended to address potentially widespread violations of federal securities laws by municipal issuers in connection with certain representations contained in their bond offering documents.
The SEC may file enforcement actions against issuers for inaccurately stating in their final official statements that they have substantially complied with their continuing disclosure obligations. To encourage issuers to proactively correct prior misstatements, the SEC has established the MCDC Initiative, under which it will recommend favorable settlement terms to issuers if they self-report materially inaccurate statements regarding prior compliance with continuing disclosure obligations. To be eligible for the MCDC Initiative, an issuer must self-report by September 10, 2014.
Following such self-reporting, the SEC will propose a settlement where the issuer consents to a cease and desist proceeding for violations of the securities act under which the issuer will neither admit nor deny the findings of the SEC regarding such violations. Under the proposed settlement, there would be no payment of any civil penalty by the issuer.
In connection with the settlement, the issuer must (i) establish appropriate policies, procedures and training regarding continuing disclosure obligations within 180 days; (ii) comply with existing continuing disclosure undertakings, including updating past delinquent filings within 180 days; (iii) cooperate with any subsequent investigation by the SEC regarding the false statement(s), including the roles of individuals and/or other parties involved; (iv) disclose in a clear and conspicuous fashion the settlement terms in any final official statement for an offering by the issuer within five years of the date of institution of the proceedings; and (v) provide SEC staff with a compliance certification regarding the applicable undertakings by the issuer on the first anniversary of the date of institution of proceedings.