The Division of Enforcement (the “Division”) of the U.S. Securities and Exchange Commission has begun a Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”) to encourage issuers and underwriters of municipal securities to self-report certain violations of federal securities laws. Under the MCDC Initiative, the Division will recommend favorable settlement terms to issuers involved in the offer or sale of municipal securities as well as underwriters of such offerings if they self-report to the Division possible violations involving materially inaccurate statements relating to prior compliance with the continuing disclosure obligations specified in Rule 15c2-12 of the Securities Exchange Act.
Rule 15c2-12 generally prohibits any underwriter from purchasing or selling municipal securities unless the issuer has committed to providing continuing disclosure regarding the security and issuer, including information about its financial condition and operating data. Rule 15c2-12 also generally 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.
Issuers who may have made materially inaccurate statements in a final official statement regarding their prior compliance with continuing obligations may be eligible to take advantage of the MCDC Initiative. Underwriters of offerings in which the final official statement contains materially inaccurate statements regarding an issuer’s prior compliance with continuing disclosure obligations may also be eligible for the MCDC Initiative. Eligibility for the MCDC Initiative may also extend to issuers or underwriters that have already been contacted by the Division as of March 10, 2014 regarding possible inaccurate statements as to past compliance with continuing disclosure obligations, but against whom no enforcement action has yet been taken.
To be eligible for the MCDC Initiative, an issuer or underwriter must self-report by accurately completing a questionnaire and submitting it within the six month period beginning March 10, 2014 and ending at 12:00 a.m. EST on September 10, 2014.
Information required by the questionnaire includes:
- identification and contact information of the self-reporting entity;
- information regarding the municipal securities offerings containing the potentially inaccurate statements;
- identities of the lead underwriter, municipal advisor, bond counsel, underwriter’s counsel and disclosure counsel, if any, and the primary contact person at each entity, for each such offering;
- any facts that the self-reporting entity would like to provide to assist the staff in understanding the circumstances that may have led to the potentially inaccurate statement(s); and
- a statement that the self-reporting entity intends to consent to the applicable settlement terms under the MCDC Initiative.