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Described by one issuer as a monumental waste of resources, the Municipalities Continuing Disclosure Cooperation initiative is about to get much less cooperative. SEC officials said they've ended settlements with underwriters and issuers that voluntarily disclosed, and the Commission is now shifting its focus to those that didn't.

The MCDC initiative offered municipal issuers and bond underwriters leniency in exchange for voluntarily reporting instances in the previous 5 years where continuing disclosure requirements were not met yet these failures were not reported in offering documents as required by federal securities laws.

Back in September, the Securities and Exchange Commission reported it had reached settlements with 71 municipal issuers including 4 hospitals. According to a recent Bond Buyer article, the total is now 72 issuers and includes 5 healthcare providers. Issuers that settled avoided penalties, but had to implement written procedures and training to ensure compliance with SEC disclosure rules, including rule 15c2-12 which requires disclosure of certain material events.

Underwriters didn't fare as well. 96% of underwriters self-reported and of those, 72 "voluntarily" agreed to pay $18 million in fines. Underwriters who didn't self-report may be in for a beating: they were recently described by the SEC enforcement division as a "group of particular importance" at "high risk for future violations". In other words, they may have something to hide.

The SEC seems less focused on issuers, probably because its regulatory grip is much weaker there. It could also be that going after state, local governments and not-for-profits is not quite as popular with the general public as taking on Wall Street. In any case, two years after its launch, one hopes that by now the MCDC initiative has achieved the SEC's objective of addressing "potentially widespread violations of the federal securities laws".

This material is intended for general information purposes only and does not constitute legal advice. For legal issues that arise, readers should consult legal counsel. Linking & reprinting policy. To discuss this article or HFA Partners' municipal advisory services, email or call 888-699-4830. © 2009-2017 HFA Partners, LLC. www.hfapartners.com.

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