The U.S. Securities and Exchange Commission (SEC) has charged 36 underwriting firms with fraudulent municipal bond offerings, all part of a concerted push to increase enforcement efforts in this area.
These cases are a milestone in one regard, as they represent the first enforcement actions taken under the new Municipalities Continuing Disclosure Cooperation Initiative (the "MCDC Initiative"). The MCDC Initiative is a voluntary, self-reporting program that focuses on material misstatements and omissions in documents related to municipal bond offerings.
The SEC has promised to treat firms with leniency, provided all problems are self-reported. The first settlement under the terms of the MCDC Initiative was reached in July of last year.
Officials from the SEC are on record saying the MCDC Initiative has already helped increase transparency and lessen fraudulent activity in the massive, $3.7 trillion municipal bond market. The long-term goal is to create and sustain positive changes in the market for the benefit of investors.
In its recent enforcement action, the SEC alleged the 36 firms in question violated federal securities law. These violations occurred when the firms prepared documents containing omissions or false statements during the bond sale process. Most of these violations are related to disclosure obligations on the part of the bond issuer. All of the events in question occurred between 2010 and 2014.
As part of the settlement, the firms agreed to pay unspecified civil penalties (a maximum of $500,000) and conduct an independent review of their internal policies governing municipal securities underwriting.
The SEC will continue to press for heightened awareness of disclosure requirements in the municipal bond market and due diligence in the underwriting process.
That's good news for investors, who sometimes have difficulty tracking down complete and current financial information about their municipal bond holdings.
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