In an effort to further uncover securities law violations and improve transparency in the municipal markets, the Enforcement Division of the Securities and Exchange Commission (SEC) this week announced its Municipalities Continuing Disclosure Cooperation (MCDC) Initiative that encourages issuers and obligated persons (collectively, issuers) and underwriters of municipal securities to self-report inaccurate statements made in municipal securities offerings about issuers’ prior compliance with continuing disclosure obligations specified in Rule 15c2-12 under the Securities Exchange Act of 1934 (the Exchange Act) in exchange for the Enforcement Division’s recommendation of standardized, favorable settlement terms. Those who may be eligible for the MCDC Initiative include issuers who may have made materially inaccurate statements in a final official statement regarding their prior compliance with their continuing disclosure obligations as described in Rule 15c2-12 and underwriters of offerings in which the final official statement contains such materially inaccurate statements. The failure by issuers and underwriters to take advantage of the MCDC Initiative could result in monetary penalties for issuers and increased monetary penalties for underwriters. For example, in July 2013, the SEC charged West Clark Community Schools (Indiana) and its underwriter, Indianapolis-based City Securities Corporation, with falsely stating to bond investors that the school district had been properly providing annual financial information and notices required as part of its prior bond offerings. Without admitting or denying the SEC’s findings, the school district and the underwriter each consented to, among other things, an order to cease and desist from committing or causing any violations of Section 10(b) of the Exchange Act and Rule 10b-5. The underwriter also agreed to pay disgorgement and prejudgment interest as well as a penalty.

To be eligible for the MCDC Initiative, issuers and underwriters must self-report by completing a questionnaire and submitting it within the six-month period ending on September 10, 2014. If an issuer or underwriter meets the requirements of the MCDC Initiative and the Enforcement Division decides to recommend an enforcement action against such issuer or underwriter, the Enforcement Division will recommend that the SEC accept standardized, favorable settlement terms for such issuers and underwriters. Such settlement terms for issuers are heavily focused on adopting policies and procedures, which continues the SEC’s recent trend in this area.

The standardized settlement terms of the MCDC Initiative are only applicable to inaccurate statements concerning compliance with continuing disclosure obligations. The MCDC Initiative is available to eligible issuer and underwriter entities and does not provide any protection for associated individuals. The MCDC Initiative and the standardized settlement terms are not applicable to other material misstatements in final official statements or related communications or other misconduct.

Further specifics of the MCDC Initiative are explained in a detailed announcement by the Enforcement Division.