Municipalities Continuing Disclosure Cooperation Update

Transcription

1 Tanya Fischer, Andrews Kurth LLP Keith Richard, Morgan Stanley Municipalities Continuing Disclosure Cooperation Update Annual Public Law Golf Trip The Ritz-Carlton, Lake Tahoe August 8, 2015

2 History Issuers or obligated persons required under Rule 15c2-12 (the Rule ) to provide annual financial information and operating data and timely notice of certain material events Any material failure to comply with the Rule for a previous 5 year period is typically disclosed in an issuer s official statement The Municipalities Continuing Disclosure Cooperation ( MCDC ) Initiative was a selfreporting program announced in March of 2014 with a final self-reporting deadline of September 10, 2014 for underwriters and December 1, 2014 for issuers 2

3 History Under the MCDC Initiative, issuers and underwriters were allowed to self-report materially inaccurate or incomplete disclosure in offering documents related to Rule 15c2-12 compliance SEC Enforcement Division indicated they would recommend favorable settlement terms to issuers and underwriters self-reporting under the MCDC Initiative but that those not selfreporting should expect harsher sanctions for any later determined Rule violations 3

4 Issues Historical laissez faire reaction of municipal market participants to Rule enforcement SEC unwillingness to provide substantive comment and advice regarding material compliance with the Rule 4

5 Recent SEC Orders On June 18, 2015 the SEC announced settlement orders (the Orders ) with 36 municipal underwriting firms Settlement Orders totaled approximately $9 million in fines for false statements or omissions in offering documents Individual civil penalties ranged from $40,000 to a cap of $500,000 5

6 Recent SEC Orders As part of the settlements, all of the participating underwriters agreed to retain independent consultants to review their policies and procedures on due diligence and to make recommendations for improvement SEC believes the MCDC Initiative has already resulted in significant improvements to the municipal securities market, including heightened awareness of issuers disclosure obligations and enhanced disclosure policies and procedures 6

7 Lessons Learned from the SEC Orders Orders primarily addressed securities offering documents that contained false or misleading statements that an issuer was in compliance with its continuing disclosure undertaking ( CDU ) but approx. 10% involved no statement in the offering document regarding an issuers prior compliance with its CDU (SILENCE is not golden?) Almost every example of a misstatement or omission in an offering document involved a failed or late filing of the annual financial reports, audit and operating data (CURRENTLY little or no focus on material event filings!) 7

8 Lessons Learned from the SEC Orders Most of the Orders cited multiple failures to file or multiple late filings of annual Financial information and operating date (REPEAT offenders beware!) Shortest late filings cited were 14 and 16 days, but these issuers had other instances of noncompliance (One time HALL PASS for minor timing violation?) 8

9 Lessons Learned from the SEC Orders Shortest one-time lateness violation was 45 days (How LATE is too late?) not enough data points to provide any real tardiness guidance going forward MCDC initiative and settlements have already achieved a primary goal of heightened focus on continuing disclosure and due diligence in the muni underwriting process (Turning up the HEAT?) 9

10 What is Next? Second wave of underwriter settlements? First wave of issuer settlements? same parameters as for underwriters - or different rules? Individuals (MCDC Initiative covers only eligible issuers and underwriters but not their staff and officers)? Issuers and Underwriters that did not self-report likely subject to a harsher regulatory review (Caveat Emptor?) 10

11 Q&A Underwriters: Have you changed your level of diligence given the recent MCDC Initiative and the enhanced SEC focus on continuing disclosure? 11