SEC Modifies MCDC Initiative

by Holland & Knight LLP
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HIGHLIGHTS:

  • On July 31, 2014, the SEC issued a press release regarding an extension of the deadline for its Municipalities Continuing Disclosure Cooperation initiative (MCDC). 
  • The extended deadline applies to issuers and obligors to self-report potential violations from Sept. 10, 2014, to Dec. 1, 2014. The deadline for underwriters of Sept. 10, 2014, has not been changed.

On July 31, 2014, the Securities and Exchange Commission (SEC) issued a press release regarding an extension of the deadline for its Municipalities Continuing Disclosure Cooperation initiative (MCDC). The extended deadline applies to issuers and obligors to self-report potential violations from Sept. 10, 2014, to Dec. 1, 2014. The deadline for underwriters of Sept. 10, 2014, has not been changed. Under the MCDC initiative (announced on March 10, 2014), the SEC Enforcement Division agreed to recommend standardized settlement terms for municipal issuers and underwriters who self-report that inaccurate statements were made in bond offerings regarding their prior compliance with continuing disclosure requirements under the Securities Exchange Act of 1934. (For a summary of the MCDC initiative, see the Holland & Knight Public Finance alert, "SEC Initiative Encourages Continuing Disclosure Violation Self-Reporting by Issuers and Underwriters," April 8, 2014.)

Additionally, under the MCDC initiative the Enforcement Division will recommend that the SEC accept settlement terms for eligible underwriters that, among other things, include payment of civil penalties up to specified amounts. According to the SEC press release, the SEC has also implemented a new tiered approach to civil penalties based on the size of the firm. The following is the new tiered approach for underwriters with 2013 reported total annual revenue: 

  • more than $100 million: $500,000 penalty
  • between $20 million and $100 million: $250,000 penalty
  • less than $20 million: $100,000 penalty

The SEC stated in its press release that:

Since announcing the initiative, the division has learned that some municipal underwriters and issuers have experienced difficulties in identifying potential violations for periods when filings were made in the Nationally Recognized Municipal Securities Information Repository (NRMSIR) system, which pre-dated the Electronic Municipal Market Access (EMMA) system. The division recognizes that parties may use reasonably available sources of information to make good faith efforts to identify potential violations but may not be able to identify certain violations during the period of the initiative due to the limitations of the pre-EMMA NRMSIR system. If violations are identified by the division after the expiration of the initiative, the division will consider reasonable, good faith, and documented efforts in deciding whether to recommend enforcement action and, to the extent enforcement action is recommended, in determining relief.

To ensure compliance with Treasury Regulations (31 CFR Part 10, §10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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