WASHINGTON — Many issuers were expected to spend Monday scrambling to finish their submissions to meet a Dec. 1 deadline for the Municipalities Continuing Disclosure Cooperation initiative.
The Securities and Exchange Commission's MCDC allows both issuers and underwriters to get favorable settlement terms if they voluntarily report, for bonds issued during the last five years, any instance in which they misled investors about their compliance with their continuing disclosure obligations.
The deadline for underwriters to self-report incidences of noncompliance was in September, and the SEC has said many firms participated. The SEC declined to comment on issuer participation.
The SEC's Rule 15c2-12 requires an underwriter to contract to receive a final official statement, which is defined to include a description of any instances in the previous five years in which the issuer or borrower failed to meet their self-imposed deadlines for filing annual financial information and notices of material events when they occur. Issuers typically include language in the OS stating that they have been in compliance. If they have not been in compliance, their statement is false.
Meanwhile, the City of Fort Lupton, Colo. and the Stroudsburg Area School District in Stroudsville, Pa. both posted documents to EMMA last week disclosing that they think their OS' may be misleading and that they want to take advantage of the lenient settlement terms offered by the MCDC. They join two other issuers who publicly posted MCDC questionnaires intended for the SEC last month.
Bond lawyers have said that there is no reason for issuers to voluntarily disclose their MCDC applications, which the SEC has said it would likely keep confidential. Any settlements would be public record, but the questionnaires themselves are not. Some attorneys said the notices could open the issuers up to possible litigation from bondholders. Settlements contain language that shield issuers from admitting guilt and are not admissible as evidence of wrongdoing, while the publicly posted EMMA documents enjoy no such protection.
Fort Lupton was tardy in posting numerous continuing disclosure documents related to $6.7 million of general obligation bonds it issued in 2002 and refunded in 2011, according to the city's EMMA postings from last week. The city's 2011 official statement said that it believed it was in full compliance with its disclosure obligations. Finance director Leann Perino said she was advised by bond counsel firm Kutak Rock to post the document to EMMA. She said she did not submit it to the SEC.
The SASD reported its OS might be misleading in connection with $30.6 million of GO bonds issued in 2011. That OS disclosed a previous instance of late reporting its 2009 annual financial information, but failed to mention that the district had also been late other years, including 2006-2008, and 2010, according to the MCDC document.
