The Municipalities Continuing Disclosure Cooperation Initiative (the "MCDC Initiative") was introduced on March 10, 2014 to encourage municipal issuers and underwriters of municipal securities to self-report potential violations of federal securities laws. Under the MCDC Initiative, the Division of Enforcement (the "Division") of the Securities and Exchange Commission (the "SEC" or the "Commission") offers the recommendation of favorable settlement terms to municipal issuers and underwriters if they self-report prior possible violations involving materially inaccurate statements in bond offering documents concerning the issuer's prior compliance with its continuing disclosure undertakings in connection with Rule 15c2-12 of the Securities Exchange Act of 1934, as amended ("Exchange Act").
What Are the Settlement Terms the Division Will Recommend under the MCDC Initiative?
If a municipal issuer or underwriter meets the requirements of the MCDC Initiative and the Division recommends enforcement against the entity, the Division will recommend that the Commission accept a settlement, which includes:
(i) For Eligible Issuers:
The issuer consents to the institution of a cease and desist proceeding under Section 8A of the Securities Act of 1933, as amended (the "Securities Act") for violation(s) of Section 17(a)(2) of the Securities Act. In the recommended settlement, the issuer neither admits nor denies the findings of the Commission and there will be no payment of any civil penalty by the issuer. The Division will further recommend that the settlement include undertakings by the issuer to: (1) adopt policies and procedures and training regarding continuing disclosure obligations within 180 days after the start of the proceedings, (2) comply with existing undertakings, including updating past delinquent filings within 180 days after the start of the proceedings, (3) cooperate with the Division in any subsequent investigations regarding the false statements, including the role of the individuals and parties involved, (4) clearly and conspicuously disclose the settlement terms in any final official statement for any securities offering within five years after the start of the proceedings, and (5) provide the SEC a compliance certificate on the one year anniversary of the start of the proceedings.
(ii) For Eligible Underwriters:
The underwriter consents to the institution of a cease and desist proceeding under Section 8A of the Securities Act and administrative proceedings under Section 15(b) of the Exchange Act for violation(s) of Section 17(a)(2) of the Securities Act. In the recommended settlement, the underwriter neither admits nor denies the finding of the Commission and the underwriter consents to an order requiring payment of a civil penalty, depending on the amount of the offering ($30 million or less: $20,000 per offering containing a materially false statement; offerings of more than $30 million: underwriter required to pay penalty of $60,000 per offering; provided, however, no underwriter is required to pay more than $500,000 in total civil penalties under the MCDC Initiative). The Division will further recommend that the settlement include undertakings by the underwriter to: (1) retain an acceptable independent consultant to conduct a compliance review within 180 days after the start of the proceedings and provide recommendations to the underwriter regarding its underwriting due diligence process and procedures, (2) take reasonable steps to enact the consultant's recommendations within 90 days of receipt of the recommendations, (3) cooperate with the Division in any subsequent investigations regarding the false statements including the role of the individuals and parties involved, and (4) provide the SEC with a compliance certificate on the one year anniversary of the start of the proceedings.
No Assurances for Individuals or for Entities that Do Not Take Advantage of the MCDC Initiative
Only eligible municipal issuers and underwriters may take advantage of the MCDC Initiative and there are no assurances for individuals associated with those entities that the Division won't recommend enforcement actions against municipal officials and employees of underwriting firms for violations of federal securities laws. Further, issuers and underwriters who are eligible for the terms of the MCDC Initiative but do not self-report cannot benefit from the favorable terms of the MCDC Initiative. For those that do not self-report and are subject to an enforcement action, the Division could recommend financial sanctions on issuers and financial sanctions on underwriters at greater amounts than proposed under the MCDC Initiative.
What Must Issuers and Underwriters Self-Report and When is the Deadline?
In order to qualify for the MCDC Initiative, an issuer or underwriter must complete a three-page questionnaire found here, which asks for basic information regarding the self-reporting entity, the offerings containing the potentially inaccurate statements, the identities of the parties to such transactions and includes space for any facts that the self-reporting entity would like to provide to assist the Division "in understanding the circumstances that may have led to the potentially inaccurate statements". The questionnaire may be sent via email to MCDCsubmissions@sec.gov, by fax to (301) 847-4713, or by mail to MCDC Initiative, U.S. Securities and Exchange Commission, Boston Regional Office, 33 Arch Street, Boston, MA 02110. To be eligible to qualify for the favorable terms of the MCDC Initiative, an issuer or underwriter must self-report by September 10, 2014 at 12:00 a.m. EST.