The SEC Division of Enforcement announced in March 2014 a voluntary self-reporting program for issuers and underwriters for a limited time and covering a limited topic. Essentially, the “MCDC Initiative” permits issuers, obligated persons and underwriters to self-report misstatements concerning prior compliance with continuing disclosure obligations in an official statement for a municipal bond issue. In exchange, the SEC Division of Enforcement agrees to recommend “favorable” settlement terms for issuers and obligated persons, as well as for underwriters involved in the offering of those municipal securities.
If you have been involved in the issuance of publicly offered municipal bonds in the past five years, either as an issuer or an obligated person, you should consult with your counsel to determine whether the description of your prior compliance with continuing disclosure undertakings was accurate in the official statement (s) for your bonds issued during that time. If the disclosure was inaccurate you should discuss with counsel whether the misstatement could be viewed by the SEC as “material” and whether the MCDC Initiative offers your organization a viable resolution to potential federal securities liability.
The MCDC Initiative affords no protection for any individuals, including issuer officials and employees, and other working group participants, including financial advisors, bond counsel, disclosure counsel and underwriter’s counsel. As part of the MCDC Initiative process, the issuer must identify the entire working group and agree to cooperate with the SEC in any subsequent investigation regarding the misstatements.
The MCDC Initiative expires September 10, 2014, after which there is no assurance the Division of Enforcement will not recommend and seek to impose penalties (including financial sanctions) in amounts greater than those available under the MCDC Initiative.
Some underwriters are now combing their files to determine whether they have transactions that might fall under the MCDC Initiative. Although it is expected that an underwriter would alert the issuer before submitting a transaction to the SEC under this initiative, notification is not required.
If you have questions about the MCDC Initiative or your prior compliance with continuing disclosure undertakings, or would like assistance in implementing enhanced policies and procedures regarding disclosure, please contact the Squire Sanders public finance lawyer with whom you regularly work.