WASHINGTON — Another issuer has disclosed its participation in the Municipalities Continuing Disclosure Cooperation initiative, a move the securities law community agrees is probably not wise.
Clinton Public School District of Clinton, Miss. posted its MCDC questionnaire to EMMA on Friday, revealing that it may have violated federal securities laws when it sold general obligation and refunding bonds in 2010, 2011, and 2012. The three issuances, totaling $31.49 million, were offered under official statements that said the district was in full compliance for the previous five years.
Documents filed to EMMA, however, show that financial and operating data was regularly filed far later than the 180 days from the end of the fiscal year as specified in the OS.
This is the second incidence of an issuer publicly disclosing its MCDC questionnaire, a document intended for the Securities and Exchange Commission. The Berwick Area School District, located near Wilkes-Barre, Pa., posted its completed MCDC questionnaire on EMMA earlier this month.
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, the statement is false.
The MCDC allows both issuers and underwriters to get favorable settlement terms if they voluntarily report, for any bonds issued during the last five years, any time 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 deadline for issuers is Dec. 1.
The documents were signed by Clinton superintendent Phillip Burchfield, and listed finance director Sandra Halliwell as the direct contact. The district was closed for the Thanksgiving holiday and could not be reached for comment. Bond counsel James Young at Young Law Group in Jackson, Miss. also was not returned. The 2010 deal was underwritten by Raymond James & Associates, Inc., the 2011 bonds by Duncan-Williams, Inc., and the 2012 bonds by Crews & Associates, Inc.
Just as in the Berwick case, bond lawyers reacted with confusion.
"I'm not sure why people would think it's a good idea or what they gain by posting this information," said Teri Guarnaccia, a partner in Ballard Spahr's Baltimore office. "I suspect there is indeed still some confusion among issuers about the jurisdictions of the SEC and [the Municipal Securities Rulemaking Board] and how EMMA works. Since there are no standard forms for disclosure, clients often simply post the underlying documents, like a rating letter or a complaint, instead of drafting a separate notice."
Another securities lawyer, who asked not to be identified, said there is a distinct possibility that the SEC's enforcement division would decide not to pursue settlements over many less egregious violations, meaning that issuers could be making these unflattering disclosures for no reason.
"I don't think it makes any sense," the lawyer said. "By putting that on EMMA, you're sort of jumping the gun."
Other lawyers have said that unlike a typical SEC settlement in which the issuer does not admit to the SEC's findings, this document could be evidence in a civil suit if investors choose to sue the issuer. MCDC settlements will be made public, but the SEC has said it will likely not disclose parties who have merely indicated a willingness to participate.
