On March 10, 2014, in an effort to enhance market transparency, the Enforcement Division (the “Division”) of the Securities and Exchange Commission (the “SEC”) launched the Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”). The MCDC Initiative seeks to address violations by municipal issuers and underwriters in bond offering documents, under Rule 15c2-12 of the Securities Exchange Act of 1934 (the “Rule”) governing continuing disclosure obligations. The Division has taken action against 72 underwriters which resulted in fines of up to $500,000. In addition, all 72 underwriters agreed to adopt strategies intended to enhance underwriters’ due diligence procedures as it relates to municipal securities.
Under the Rule, underwriters are prohibited from purchasing or selling municipal securities unless the issuer has committed to provide continuing disclosure materials regarding the municipal securities, the issuer and material event notices. In addition, the Rule requires disclosure in the final official statement of any material non-compliance with any continuing disclosure obligations that has occurred in the five years prior to the offering.
Under the MCDC Initiative, issuers and underwriters were 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, eligible issuers and underwriters received favorable settlement terms, as under the MCDC Initiative the Division recommends that the SEC should accept settlements in which eligible issuers are not required to pay a civil penalty.
In light of the settlements between the SEC and underwriters, we have reviewed all enforcement action taken against the underwriters to date. The rulings do not identify any issuers that may have violated the Rule.
In the event that you are contacted by the Division, we are able to consult with you to discuss the MCDC Initiative or to provide assistance in drafting procedures, training or researching any potential violations of your continuing disclosure obligations.