WASHINGTON – The Government Finance Officers Association sent an alert to its members on Thursday about the importance of timely disclosures in the wake of issuer settlements with the Securities and Exchange Commission under its voluntary continuing disclosure enforcement initiative.
The SEC announced settlements with 71 issuers on Aug. 24 under its Municipalities Continuing Disclosure Cooperation initiative, bringing the total number of settlements with underwriters and issuers under the initiative to 142.
MCDC promised that underwriters and issuers would receive lenient settlement terms if they self-reported instances over the last five years where issuers falsely said in offering documents that they were in compliance with their continuing disclosure agreements.
The most recent round of settlements included large and small issuers as well as non-profit borrowers from 45 states. Those issuers that settled without admitting or denying the SEC's charges joined 72 underwriters who previously settled with the SEC and paid a combined $18 million in fines. Issuers did not have to pay fines as part of their settlements, but agreed to take remedial actions.
Emily Brock, director of GFOA's federal liaison center, said the group's alert is the product of a meeting of its debt committee. She said the goal was to look carefully at the 71 settlements to glean information and communicate key takeaways to GFOA's 19,000 members.
"Together, we came up and said we need something that allows us to understand what [the] transgressions are and if there's any consistency in them," Brock said. She added that she and a few debt committee members then did a "deep dive" and found that the vast majority of the settlements were due to late filings of financial information and that each of the settlements mentioned a failure to file a notice of the late filings.
Brock and the committee members found that the issuers that settled missed deadlines by as little as 36 days and by as much as several years. The alert mentions that there were several examples of failures to report other material events.
Brock said that she and other members were surprised at the consistency of the settlements, with nearly all of them noting that timing and a failure to file were major issues.
"It's an expectation that a better understanding of materiality [might come out], but from what we could tell, materiality means late," Brock said.
She added that there was some discussion about whether this would be the only round of issuer settlements under the initiative. While she hopes that it is, she said she and GFOA members can only speculate. Andrew Ceresney, the SEC's head of enforcement, would not comment on whether there would be more settlements when asked about the possibility during a press call.
"We are preparing ourselves for more information," Brock said. "We certainly keep lines of communication open with folks at the SEC."
The GFOA alert links to past best practices and alerts that discuss how issuers can best understand their continuing disclosure responsibilities as well as how to use their comprehensive annual financial reports to meet their disclosure requirements.
It particularly references five "essential practices" that are critical for good disclosure: understanding and discussing the issuer's policies and procedures on disclosure; knowing who within the issuer is filing what, when and where; being aware of what the issuer has posted on EMMA; knowing what the issuer has promised to do in its continuing disclosure agreement; and recognizing that each official statement must include a statement about whether the issuer failed to materially comply with previous commitments within the last five years.
The alert recommends that all issuers carefully review and confirm their statements regarding past compliance in preparation for offering documents as well as consult legal counsel if they find missed deadlines or filing failures.
