It started with the SEC’s MCDC initiative and Cease and Desist Orders, then it was the resulting enhanced scrutiny of underwriters and now it’s amendments to Rule 15c2-12. Each has further emphasized the importance of ensuring a complete understanding and management of disclosure obligations and having comprehensive polices and procedures.
The amendments to Rule 15c2-12 have refocused the spotlight on issuers and their policies, procedures and controls as well as their filing history and ongoing disclosure management. Our full article (link below) highlights what the market has learned since the MCDC initiative, discusses the Rule 15c2-12 amendments and identifies several resources for your consideration.
Background: MCDC Outcomes and SEC Enforcement Actions
The MCDC initiative was “intended to address potentially widespread violations of the federal securities laws by municipal issuers and underwriters of municipal securities in connection with certain representations about continuing disclosures in bond offering documents.” This initiative resulted in Cease and Desist Orders (Orders) against 72 underwriters and 71 issuers across a wide variety of organizations. For issuers that settled, they agreed to cease and desist from future violations with the Orders requiring them to “undertake to establish appropriate policies, procedures, and training regarding continuing disclosure obligations; [and] comply with existing continuing disclosure undertakings.”
Moreover, at the Securities Enforcement Forum in 2016, then-Director of Enforcement, Andrew Ceresney stated that the “Commission is bringing actions against more municipal issuers and public officials.” Below are some key takeaways from two noteworthy cases that highlight the importance of proper disclosure management.
City of Miami Key/Boudreaux Case:
-
- Showed the SEC’s willingness to go to trial resulting in significant penalties.
- Miami and its former budget director were found guilty of securities fraud for faulty disclosures.
- “We will … hold municipalities and their officers accountable … if they engage in financial fraud or other conduct that violates federal securities laws.” Andrew Ceresney, former SEC Enforcement Director
- Beaumont Financing Authority Case:
- Resulted in Beaumont and its then-executive director settling charges that they made false statements about prior compliance with continuing disclosure obligations.
- Negligence was deemed sufficient to establish violations of Sections 17(a)(2) and (a)(3).
- Made clear that a misrepresentation or omission is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision.
- Demonstrated that the issuer is accountable for meeting all disclosure obligations – the use of a dissemination agent does not absolve the obligated party from fulfilling its obligations