On March 10, 2014, the Division of Enforcement (the “Division”) of the Securities and Exchange Commission (the “SEC”) launched the Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”) to address potential violations of federal securities laws by municipal issuers and underwriters of municipal securities in connection with representations about continuing disclosures in bond offering documents. Under Rule 15c2-12 under the Securities Exchange Act of 1934 (the “Rule”), underwriters are prohibited from purchasing or selling municipal securities unless the issuer has committed to providing continuing disclosure materials regarding the municipal securities, the issuer and material event notices. In addition, the Rule requires that any final official statement prepared in connection with a primary offering of municipal securities contain a description of any instances in the previous five years in which the issuer failed to comply, in all material respects, with any previous commitment to provide such continuing disclosure. Under the MCDC Initiative, issuers and underwriters are encouraged to self-report possible violations of the Rule involving materially inaccurate statements in bond offering documents relating to prior compliance with continuing disclosure obligations. In exchange, the SEC states that eligible issuers and underwriters will receive favorable settlement terms. Failure to take advantage of the MCDC Initiative could result in civil penalties (under the MCDC Initiative, the Division will recommend that the SEC should accept a settlement in which eligible issuers are not required to pay a civil penalty) for issuers and increased civil penalties for underwriters. In order to participate in the MCDC Initiative, issuers and underwriters must self-report by submitting a questionnaire by 12:00 a.m. EST, September 10, 2014.
In light of the MCDC Initiative by the SEC, issuers and underwriters are encouraged to contact McKennon Shelton & Henn LLP to discuss any potential securities laws violations regarding continuing disclosure obligations. The lawyers of McKennon Shelton & Henn LLP have a keen sensitivity to disclosure obligations and are available to assist issuers and underwriters navigate this initiative.