WASHINGTON – Securities and Exchange Commission chairman Mary Jo White cited a voluntary municipal continuing disclosure enforcement program for dealer and issuers as one of the commission’s successful efforts at deter securities law violations and change market behavior.
Referring to results from the SEC’s Municipalities Continuing Disclosure Cooperation (MCDC) initiative, she
White and Tim Massad, chairman of the Commodity Futures Trading Commission, were testifying about the fiscal 2017 budget requests for the SEC and CFTC at the hearing, which was held by the Senate Appropriations Committee’s subcommittee on financial services and general government.
The Municipalities Continuing Disclosure Cooperation (MCDC) initiative, announced in March 2014, allows underwriters and issuers to receive lenient settlement terms if they self-report any instances during the past five years that issuers falsely claimed in offering documents that they were in compliance with their self-imposed continuing disclosure agreements.
The SEC ordered a total of 72 firms making up 96% of the market share of muni underwritings to pay a total of $18 million for selling muni bonds using offering documents that stated issuers had filed timely disclosure in compliance with their continuing disclosure obligations, when they had not. The firms were hit with fines of up to $500,000 under the MCDC program.
The SEC is expected to soon start settling with issuers that falsely disclosed they had complied with their continuing disclosure agreements, such as by filing timely audited financial and operating information, when they had not. The commission is not expected to impose fines on issuers, but has reserved the right to pursue separate enforcement action against government officials found culpable for the material misstatements or omissions in offering documents.
White told lawmakers she is very proud of the SEC’s enforcement program, but said it’s not always easy to determine how successful cases are in deterring securities law violations. She cited the MCDC program as an exception and an example of success in this area.
At the hearing, White urged subcommittee members to meet President Obama’s request of $1.78 billion for the SEC for fiscal 2017, which she said “is carefully thought through” and “critically needed” to fulfill the commission’s responsibilities to investors and others, as well as to comply with new mandates from Congress.
The requested budget would allow the SEC’s Office of Municipal Securities to add a lawyer to its staff, although White did not mention this in her oral or written testimony.
The funding level would allow the SEC to hire an additional 250 staff in “critical, core areas and continue to improve [its] information technology,” she told the lawmakers during the hearing.
About 52 of those new positions would be in the enforcement division to support intelligence analysis, investigation and litigation, she explained in her written testimony.
She wrote that municipal bond enforcement is one of several areas that would benefit from funds to add five positions to enhance the SEC’s data analytics to assist in the implementation of data intensive projects, develop state-of-the-art investigative tools, and improve forensic capabilities.
Muni bond enforcement also would benefit from funds to add five positions for the collection, analysis, triage, referral, monitoring and follow through on thousands of tips, complaints and referrals, she wrote.
White noted that in fiscal 2016 the SEC brought a record number of enforcement actions against those who defrauded investors and violated the law, including many first-of-a-kind actions. The SEC obtained orders for monetary remedies of more than $4 billion, she said.
Asked by lawmakers about the SEC’s whistleblower program, White said it has been “enormously successful” and “a game changer” for the commission. “It’s really enhanced the enforcement program tremendously,” she said without talking about any specific cases.
White stressed in her written testimony, and lawmakers noted during the hearing, that funding for the SEC is “deficit-neutral” because it is offset by transaction fees the commission collects.
The appropriations for the commission would not count against the fiscal 2016 or fiscal 2017 caps set in the Bipartisan Budget Act of 2015, she noted.
