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SEC Charges 71 Municipal Issuers in Municipal Bond Disclosure Initiative

Added by Hawley Troxell in Articles & Publications, News on September 14, 2016

On August 24, 2016, the Securities and Exchange Commission (the “SEC”) announced enforcement actions against 71 issuers, including 1 Idaho issuer, for violations in municipal bond offerings.

The enforcement actions were brought under the Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”), a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents. To incentivize disclosure, the SEC offered standardized, favorable settlement terms to municipal issuers and obligated persons and underwriters who self-reported that they have made inaccurate statements in bond offerings about their prior compliance with continuing disclosure obligations. Continuing disclosure provides municipal bond investors with important information, including annual financial reports, on an ongoing basis. The deadline for issuers to self-report violations under the MCDC Initiative was December 1, 2014.

Previously the SEC announced monetary sanctions against a number of underwriting firms. This is the first announcement of enforcement against municipal issuers.

The SEC found that from 2011 to 2014, the 71 issuers sold municipal bonds using offering documents that contained materially false statements or omissions about their compliance with continuing disclosure obligations. All of these issuers were allowed to settle the actions (a) without admitting or denying the findings, (b) agreeing to cease and desist from future violations, and (c) agreeing, as was announced would be the case under the MCDC Initiative, to: (i) establish appropriate policies, procedures, and training regarding continuing disclosure obligations, (ii) comply with existing continuing disclosure undertakings, including updating past delinquent filings, (iii) disclose the settlement in future offering documents, and (iv) cooperate with any subsequent investigations by the SEC.

One Idaho issuer, not a school district, was among those named in this SEC announcement as having been charged under the MCDC Initiative and submitting to an SEC order. A copy of the SEC order is available here. The requirements imposed on this issuer are consistent with the MCDC Initiative settlement terms described above.

At the time the SEC announced the MCDC Initiative, Hawley Troxell discussed with our public finance clients that the SEC was increasing its scrutiny for disclosure generally and for compliance with continuing disclosure obligations. We advised Idaho issuers, even those with no deficiencies reportable under the MCDC Initiative, to take a proactive approach by adopting disclosure policies and procedures and to engage in appropriate training on continuing disclosure requirements–essentially adopting the remedies the SEC might impose. We have developed model policies for this purpose. If you have not adopted a policy or have any questions about the policy that you did adopt, or concerns about your continuing disclosure obligations, please contact us. It is an honor to serve our public finance clients.