If 2016 was the year of the Cubs and Pokémon Go, and 2015 was the year of the Apple Watch, then 2014 was the year of MCDC, at least in the eyes of issuers and underwriters of municipal bonds. The Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”) was a voluntary self-reporting initiative of the Division of Enforcement of the U.S. Securities and Exchange Commission (the "SEC"). The MCDC Initiative was intended to address possible violations of federal securities laws by municipal issuers and underwriters of municipal securities in connection with representations about continuing disclosure made in bond offering documents.
Issuers who chose to self-report were required to submit a questionnaire to the SEC by no later than December 1, 2014. In the questionnaire, issuers reported possible violations involving statements relating to their past compliance with continuing disclosure obligations under Rule 15(c)(2)(12) of the Securities Exchange Act. Since the filing deadline, the SEC has approved standardized settlements with a variety of municipal bond issuers, as well as underwriters of such offerings. Several rounds of underwriter settlements began in 2015, and the first round of settlements with issuers who self-reported took place in late August of 2016.
Until now, the SEC had given no indication whether it would seek additional settlements under the MCDC Initiative. On December 13, 2016, an SEC representative stated that the SEC staff will not ask the SEC to approve any more settlements with issuers or underwriters who self-reported under the MCDC Initiative; rather it will shift its focus to those underwriters and issuers that did not voluntarily disclose violations through MCDC. Specifically, the SEC staff is interested about instances where violations were not self-reported by an issuer, but were reported by an underwriter, or vice versa. There is also the possibility that the SEC may seek enforcement actions against individuals.
Although there were only 72 underwriter and 72 issuer settlements issued under the MCDC Initiative, it is fair to say that the SEC achieved its goal of increasing market-wide attention on compliance with continuing disclosure obligations and increasing the level of due diligence and transparency in the municipal bond marketplace.
Please contact our Ahlers & Cooney, P.C. Public Finance Lawyers should you have any questions.
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Boehlert, J. Eric
Cory, R. Mark