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Legal Alert: Underwriter Deadline Nears for Municipal Continuing Disclosure Cooperation Initiative

Publisher: Sutherland

In early March, the SEC© Division of Enforcement announced its Municipal Continuing Disclosure Cooperation Initiative. The initiative offers issuers and underwriters an opportunity to voluntarily self-report any potential material misstatements or omissions related to past compliance with continuous disclosure obligations. In exchange for self-reporting, favorable settlement terms are given in lieu of harsher punishment for violations that are not self-reported.

The SEC© believes that statements regarding continuous disclosure compliance are material. Below are settlement terms if an issuer decides to self-report:

  1. Consent to a cease and desist proceeding under Section 8A of the Securities Act for violations of Section 17(a)(2) of the Securities Act (the issuer will neither admit nor deny wrongdoing);
  2. Undertake to:
    • Establish appropriate policies and procedures and training regarding continuing disclosure obligations within 180 days;
    • Comply with existing continuing disclosure undertakings within 180 days;
    • Cooperate with any subsequent investigation by the SEC© regarding the false statement(s), including roles of individuals and/or other parties involved (notably the settlement only applies to the issuer, and the SEC© may still bring actions against individuals);
    • Disclose settlement terms in any offering statement for the next five years; and
    • Certify compliance with the settlement undertakings one year from the date of settlement
  3. No payment of any civil penalty

Because the initiative is a new program, it is unclear how broad the SEC’s enforcement actions will be against issuers, obligors, or underwriters that choose not to self-report.

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