• Municipal Continuing Disclosure Cooperative Initiative (MCDC) Update
  • September 9, 2014 | Authors: Jacob A. McClellan; Dennis H. Otten
  • Law Firm: Bose McKinney & Evans LLP - Indianapolis Office
  • Introduction: On March 10, 2014, the Securities and Exchange Commission’s Division of Enforcement announced the Municipal Continuing Disclosure Cooperative Initiative (the “MCDC Initiative”). The MCDC Initiative provides issuers and underwriters of municipal securities the opportunity to self-report violations of securities laws related to continuing disclosure requirements associated with publicly offered municipal securities. The Securities and Exchange Commission (“SEC”) has indicated that those issuers and underwriters that self-report will receive more favorable settlement terms than if they fail to self-report and are later subject to an SEC Enforcement Action.

    Background: SEC Rule 15c2-12 (the “Rule”) requires underwriters of municipal bonds and securities to determine that obligated persons and issuers have entered into written undertakings to provide ongoing disclosure of certain financial information and of certain reportable events to the Municipal Securities Rule Making Board through their Electronic Municipal Market Access System. The offering document pursuant to which municipal securities are issued typically contains a statement regarding the issuer’s compliance in the past five (5) years with such reporting requirements, along with a description of the issuer’s continuing disclosure obligations. In a recent SEC Enforcement Action, the SEC charged an issuer with certain anti-fraud violations for indicating on an offering document that the issuer had complied in all material respects with its continuing disclosure obligations over the past five years.

    Considerations:

    • The potentially favorable settlement terms available to Issuers and Underwriters through the MCDC Initiative may not shield individuals associated with reporting entities.
    • SEC enforcement actions outside the MCDC Initiative could result in the SEC seeking remedies beyond those described in the MCDC Initiative.
    • “Materiality” of failures to comply should be considered, as well as materiality of any misstatements to investors.
    • The deadline for issuers to self-report pursuant to the MCDC Initiative is December 1, 2014.

    Conclusion: Obligated persons and issuers should conduct a review of their continuing disclosure compliance and offering document disclosures and discuss any deficiencies with counsel in order to make an informed decisions as to whether or not to participate in the MCDC Initiative.