On August 1, 2014, the SEC’s Enforcement Division announced that it will extend the deadline for state and local government issuers to participate in the commission’s Municipalities Continuing Disclosure Cooperation (MCDC) Initiative from September 10, 2014 to December 1, 2014. The deadline for underwriters to participate remains September 10, 2014 (view the SEC press release on the extension). MCDC is a voluntary program, announced by the SEC on March 10, 2014, that provides government issuers and underwriters with the opportunity to self-report instances of material misstatements in bond offering documents regarding the issuer’s prior compliance with its continuing disclosure obligations. While the program is voluntary, the GFOA raised a number of concerns with the SEC (see advocacy letter), including concerns about the limited time that governments would have to review instances of material misstatements reported by underwriters participating in the initiative. The extended deadline the SEC announced last week means that state and local governments will have nearly three months after underwriters submit their findings of material misstatements made by issuers to communicate with underwriters, review and determine the accuracy of their findings, and discuss whether or not to dispute the findings.
The GFOA’s Committee on Governmental Debt Management released an MCDC alert in July 2014 which provides members with background information on MCDC and recommendations on how to approach the initiative. The alert recommends that issuers consider contacting all underwriters on their bond deals over the past five years to ask that they share any information they intend to provide to the SEC under the initiative pertaining to these bonds. GFOA also released a new alert on MCDC following the August 1 SEC announcement of the extension for issuers to participate in the initiative. The new alert urges governments to use the roughly three-month period between the September 9 filing deadline for underwriters and December 1 filing deadline for issuers to communicate with their underwriters and counsel about any information that participating underwriters submit to SEC for MCDC. The document also discusses some of the common reporting errors that issuers can expect to see from underwriters, and provides a link to Considerations for Analysis by Issuers of Materiality and Self Reporting, a recent publication issued by the National Association of Bond Lawyers (NABL) intended to assist issuers in determining materiality for the purposes of MCDC.