This week, the Government Finance Officers Association (“GFOA”) released an updated alert on the Municipalities Continuing Disclosure Cooperation Initiative (“MCDC”) launched by the Securities and Exchange Commission’s Enforcement Division in March 2014. MCDC allows issuers and underwriters of municipal securities to self-report instances in which they made inaccurate statements in bond offerings regarding prior compliance with continuing disclosure obligations pursuant to the Securities Exchange Act of 1934. Intense lobbying ensued after the announcement. Market participants decried the short timeframe for participation, the lack of guidance from the SEC on the materiality standard to be applied to potential violations, and the potential economic hardship facing smaller underwriters that wish to participate in the initiative. Apparently, the lobbying paid off to some extent. On July 31, 2014, the SEC announced that it was modifying the program as follows:
- The deadline for issuers to self-report possible violations was extended to December 1, 2014 (the deadline for underwriters to self-report remains midnight September 10, 2014); and
- For underwriters, the Commission established a tiered approach to the imposition of civil penalties based on the level of reported revenue for 2013.
In the updated alert, GFOA again encourages issuers to contact the lead underwriters on their transactions during the last five years to determine whether they have found and plan to report any possible violations through MCDC. With the potential for decreased civil penalties for some underwriters, there may be a further incentive for reporting suspected violations that issuers may not consider “material”. As GFOA reiterated, it is critical for issuers to make their own assessment of materiality, in consultation with counsel, before determining whether to participate in the program. The recent paper released by the National Association of Bond Lawyers provides useful guidance for issuers seeking to assess materiality and determine whether to participate in MCDC. If we can be of assistance, contact us today!