The U.S. Securities and Exchange Commission (the “SEC”) has announced an initiative to allow municipal bond issuers to self-report misrepresentations made in Officials Statements about the issuer’s previous compliance with continuing disclosure obligations within the last five years. Issuers generally make a representation in a bond’s Official Statement that they have complied with all previous agreements to make continuing disclosures for prior bond issuances (such as filing annual financial statements on the MSRB’s EMMA database). However, if the issuer has not in fact fulfilled prior continuing disclosure obligations, this statement may be a misrepresentation for which the issuer could be liable under securities law.
The SEC is currently offering a program whereby the SEC would recommend favorable settlements with issuers who made misrepresentations in Official Statements if the issuers self-report such inaccurate statements prior to September 10, 2014. While timely self reporting could result in a SEC enforcement proceeding against the issuer, penalties would be lighter, and would likely avoid financial penalties. Individual officers and employees of the issuer, however, could still face liability. Discovery of non-reported misrepresentations after the September 10 deadline would likely result in much harsher penalties, including likely financial penalties. Municipalities that have publicly issued bonds in the last five years may, therefore, wish to conduct a review of the accuracy of any statements regarding continuing disclosure obligations in the Official Statements of those bonds. Note: any self-reporting and information provided to the SEC could be made public or provided to state or local enforcement agencies. Municipalities should contact CVR or other bond counsel for assistance. For more information, see the SEC’s Municipalities Continuing Disclosure Cooperation Initiative webpage.