Disclosure Lapses Bring Expensive and Tough SEC Enforcement – Internal Disclosure Policies and Procedures A Key Focus

    August 2013

    The Securities and Exchange Commission (SEC) recently issued its fourth cease and desist order of 2013 regarding municipal disclosure failures. An Indiana school district is the subject of In Re West Clark Community Schools (Order) in which the SEC found that the school district misled investors in a 2007 offering document by falsely stating it had complied with prior continuing disclosure obligations. This enforcement action follows closely on the heels of the SEC’s orders regarding the State of Illinois (pension disclosure), the City of Harrisburg (public statements posted on the City’s website) and the City of South Miami (misstatements regarding federal tax compliance). A clear message to be taken from these orders is that each municipal issuer, regardless of size or frequency of issuance, needs to review whether, and exactly how, it is meeting its disclosure responsibilities under the federal securities laws.

    It is expensive and distracting to become the subject of an SEC enforcement action. It is recommended, therefore, that each municipal issuer (i) review its internal disclosure policies and procedures with its administrative staff and experienced disclosure counsel, (ii) confirm the conformity of those policies and procedures with the SEC’s expectations and (iii) confirm its compliance with the commitments it has made. An issuer’s adoption of, and consistent adherence to, policies and procedures that meet the SEC’s expectations are likely to reduce the risk of aggressive SEC enforcement action if there is ever an isolated lapse in compliance.