• SEC Launches Cooperation Initiative Targeting Municipal Market Continuing Disclosures
  • March 28, 2014 | Author: Luke B. Falgoust
  • Law Firm: Jones Walker LLP - New Orleans Office
  • On March 10, 2014, the Securities and Exchange Commission ("SEC") issued a press release regarding a new enforcement cooperation initiative targeted at encouraging municipal securities issuers and underwriters to self-report certain violations of continuing disclosure obligations. Under the Municipalities Continuing Disclosure Cooperation Initiative, the SEC's Enforcement Division will recommend "standardized, favorable settlement terms" with municipal securities issuers and underwriters who self-report possible violations of Rule 15c2-12 of the Securities Exchange Act of 1934. Those that do not self-report should "expect to face increased sanctions for violations," SEC Enforcement Director Andrew Ceresney said in the release.

    Rule 15c2-12 restricts underwriters from buying or selling municipal securities unless the issuer commits to providing continuing disclosures regarding the security and issuer, including disclosures regarding the Issuer's financial condition and operating data. The rule also mandates that municipal bond offering documents describe any instances in the last five years in which the issuer failed to comply, in all material respects, with a previous commitment to provide continuing disclosures.

    The SEC said that it may file enforcement actions in connection with continuing disclosure deficiencies, citing a July 2013 enforcement action alleging that an Indiana school district defrauded investors by falsely stating in a 2007 bond offering that the district complied with disclosures required by an earlier bond offering (45 SRLR 1438, 8/5/13).

    The Initiative is effective until September 10, 2014. Municipal issuers and underwriters that want to self-report their continuing disclosure violations must do so through a questionnaire submitted to the SEC by that date.