Municipalities continuing disclosure cooperation initiative: what you should know about the SEC's recent enforcement actions.

Author:Brock, Emily S.
Position:Federal Focus

Several of GFOA's best practices address the continuing disclosure of financial information in publicly issued debt, and two in particular --Understanding Your Continuing Disclosure Responsibilities and Using the Comprehensive Annual Financial Report to Meet SEC Requirements for Periodic Disclosure--were established to inform GFOA members of their continuing disclosure responsibilities resulting from SEC Rule 15c2-12. The rule prohibits an underwriter from purchasing or selling municipal securities unless an issuer has committed to providing annual financial information and operating data, specified in a written continuing disclosure agreement. It also requires underwriters to obtain and review a final official statement that discloses whenever the issuer has failed to file information required by the continuing disclosure agreement during the previous five years.

SEC Rule 15c2-12 only applies to underwriters because the Securities and Exchange Commission (SEC) is prohibited from directly regulating issuers under the 1975 Tower Amendment to the Securities Exchange Act of 1934 (known as the Exchange Act). Through recent enforcement actions, however, the SEC has demonstrated that making false statements in official statements about continuing disclosure obligation compliance will be interpreted as securities law violations under Section 17(a) of the Securities Act of 1933 and/or Section 10(b) of the Exchange Act, and in this way it does apply to issuers.


On March 10, 2014, the SEC's Enforcement Division announced the Municipalities Continuing Disclosure Cooperation (MCDC) initiative. According to the SEC, the purpose of MCDC is to provide issuers and underwriters the opportunity to self-report instances of material misstatements in bond offering documents regarding the issuer's prior compliance with its continuing disclosure obligations. The SEC doesn't define the term "material" and has indicated that it will determine the materiality of submissions under the initiative on a case-by-case basis depending on the "overall facts and circumstances" of each situation. (1) The deadline for self-reporting under the MCDC Initiative was December 1, 2014, and the SEC Enforcement Division has not publicized the total number of issuers that did so.

The Enforcement Division has established standardized settlement terms for participating issuers under MCDC (described below). As part of the settlement recommended for issuers that are...

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