SEC’s Self-Reporting Program to Correct Misstatements Regarding Continuing Disclosure Compliance Set to Expire on September 10, 2014

by Saul Ewing Arnstein & Lehr LLP


The Securities and Exchange Commission’s Municipalities Continuing Disclosure Cooperation Initiative provides an opportunity for municipal bond issuers, borrowers and underwriters to correct misstatements in offering documents regarding an issuer or borrower’s compliance with its continuing disclosure obligations. Those entities that self-report violations before the program closes will face defined and favorable settlement terms, which include no monetary penalties for municipal issuers and borrowers. The SEC has indicated that it will likely seek financial sanctions against issuers and borrowers that do not self-report and are later found to be in violation of SEC rules. The self-reporting program expires at 12:00 a.m. on September 10, 2014.

In the first quarter of 2014, the Securities and Exchange Commission (“SEC”) announced a voluntary self-reporting program that permits municipal bond issuers, obligated persons (such as 501(c)(3) borrowers of municipal bonds) and underwriters to report to the SEC any instances in which misstatements have been made in final official statements regarding compliance with continuing disclosure obligations. Generally, as part of a publicly offered municipal bond issue, the issuer or obligated person covenants to provide periodic financial information to investors, as well as notice of certain events (such as rating changes or bond defaults). Further, in connection with municipal bond offerings, the issuer or obligated person is required to disclose in the final official statement any instances in which the issuer or obligated person has failed to comply in all material respects with a previous undertaking to provide continuing disclosure to investors.  

The SEC has indicated that it has significant concerns that many issuers and obligated persons have not complied with their obligations to file continuing disclosure documents and that false statements in official statements in the past five years regarding such compliance may be widespread. For instance, in 2013, the SEC charged a school district in Indiana and its underwriter with falsely stating to bond investors that the school district had properly complied with its continuing disclosure obligations, when in fact, the school district had not filed its annual financial information as required over the course of several years.  

In order to address its concerns, the SEC has launched its Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC Initiative”). The MCDC Initiative allows issuers or obligated persons (referred to collectively hereinafter as “issuers”) who have made materially inaccurate statements in an official statement regarding prior compliance with their continuing disclosure obligations to enter into favorable settlement terms with the SEC. For issuers, the settlement involves no monetary penalty. Municipal bond underwriters are also permitted to report transactions that they have underwritten that contain misstatements regarding continuing disclosure compliance. While underwriters that self-report do face financial penalties, no underwriter will be required to pay more than $500,000 total in civil penalties under the MCDC Initiative.

If you have participated in a publicly offered municipal bond issuance in the past five years, you should review the official statement(s) for those bonds to determine if the description of your prior compliance with continuing disclosure undertakings was factually accurate. If not, you should consider, along with your counsel, whether participation in the MCDC Initiative presents your organization with an opportunity to correct the past securities law violation on favorable terms. Misstatements in offering documents for bonds issued more than five years ago are outside the scope of the MCDC Initiative, as a five year statute of limitations applies to SEC enforcement actions seeking financial penalties, running from the time the alleged violation occurs.
To participate in the MCDC Initiative, issuers and underwriters are required to complete a questionnaire prepared by the SEC. The issuer or underwriter will need to identify the municipal bond offering that may contain a materially inaccurate statement regarding compliance with prior continuing disclosure obligations. The SEC also requires the issuer or underwriter to identify the other members of the working group, including bond counsel, underwriter’s counsel and disclosure counsel (if any).       

Issuers and underwriters who do not self-report face the risk of remedies beyond those described in the MCDC Initiative if faced with an SEC enforcement action. For issuers, the SEC had indicated it will likely recommend and seek financial penalties. For underwriters, the SEC has indicated it will likely recommend and seek financial sanctions in amounts greater than those available pursuant to the MCDC Initiative. While it is expected that an underwriter or issuer would contact its counterparty prior to reporting a violation involving the sale of the issuer’s securities, notification is not required, and there exists the possibility that only one party will participate in the MCDC Initiative, in the process alerting the SEC to a potential violation by the other party and exposing the other party to more significant penalties.         


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.

© Saul Ewing Arnstein & Lehr LLP | Attorney Advertising

Written by:

Saul Ewing Arnstein & Lehr LLP

Saul Ewing Arnstein & Lehr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.