The SEC brought enforcement actions against 71 municipal issuers and other obligated persons for municipal bond offering violations. The actions were brought under the SEC's Municipalities Continuing Disclosure Cooperation ("MCDC") Initiative, which is "a voluntary self-reporting program targeting material misstatements and omissions in municipal bond offering documents." The SEC observed that it now has filed a total of 143 actions against 144 respondents as part of the initiative.
The SEC determined that from 2011 to 2014, the 71 issuers and obligated persons sold municipal bonds using offering documents that contained materially false statements or omissions regarding their compliance with continuing disclosure obligations. The parties' misconduct involved their breaking commitments to make ongoing disclosures and not the substance of the disclosures made at the time of sales. The following language is typical of that which is in the settlements:
"Specifically, in an official statement for municipal securities, Respondent affirmatively misstated that it had materially complied with prior agreements to provide continuing disclosure."
SEC Enforcement Director Andrew Ceresney asserted that such disclosure violations suggest a wide-ranging trend:
The diversity among the 71 entities in these actions demonstrates that continuing disclosure failures were a widespread and pervasive problem in the municipal bond market. The MCDC Initiative has brought attention to this important issue and resulted in increased compliance by municipal issuers and underwriters.
Without admitting or denying the findings, the parties settled the actions and agreed to cease and desist from future violations. Pursuant to the terms of the initiative, the parties also agreed to (i) establish appropriate policies, procedures, and training regarding continuing disclosure obligations, (ii) comply with existing continuing disclosure undertakings, including updating past delinquent filings, (iii) disclose the settlement in future offering documents, and (iv) cooperate with subsequent investigations by the SEC.
Commentary / Steven Lofchie
Inevitably, the SEC's cases against governmental entities have a political element. In this instance, the SEC did not charge that the municipal entities or governmental officials made affirmative misstatements about their financial condition. The SEC has brought a limited number of such actions so far; based on reports as to municipal entities' status, it could bring more. To me, the question that arises is: why are municipal entities and their officials not held to the same standards of conduct, and liable for the same misconduct or misstatements, as private companies and their officers?
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