SEC modifies MCDC initiative

Author: Fredric A. Weber Publication | August 2014

On March 10, 2014, the US Securities and Exchange Commission (SEC) announced a Municipalities Continuing Disclosure Cooperation (MCDC) initiative, under which issuers of, obligors on, and underwriters of offerings of municipal securities are being afforded an opportunity to self-report possible violations of federal securities laws that may have resulted from offering document misstatements about prior compliance with the issuer’s or obligor’s continuing disclosure undertakings.1

On July 31, 2014, the SEC announced modifications to the MCDC Initiative:2

  • Issuer reporting deadline: The SEC is extending through November the time by which municipal securities issuers and other obligors may self-report possible violations,
  • Per underwriter civil penalty cap: The SEC has reduced the per firm cap on civil penalties for underwriters with less than $100 million in total 2013 revenue (to $100,000 for underwriters with less than $20 million and $250,000 for others), and
  • Benefit of reasonable review: If undisclosed prior violations are identified after the self-reporting deadline, the SEC will take “reasonable, good faith, and documented” MCDC review efforts into account in deciding whether to initiate enforcement action as well as appropriate relief.

The self-reporting deadline for underwriters remains September 9, 2014. The per firm cap for underwriters with more than $100 million in total 2013 revenue remains $500,000.

As a result of the later date by which issuers and obligors may self-report, it is likely that underwriters must determine whether to self-report an issuer’s offering before the issuer decides whether to self-report. Consequently, underwriters may be more inclined to self-report offerings in order to limit their exposure if the issuer later chooses to self-report.

For a summary and analysis of the MCDC initiative as modified, see “SEC municipal securities self-reporting initiative.