Securities Litigation

State or local government entities, special tax districts, hospital districts and other municipal bond issuers face a December 1 deadline to respond to the SEC Enforcement Division's "Municipalities Continuing Disclosure Cooperation Initiative." The MCDC Initiative is part of regulatory and enforcement emphasis on the municipal-securities world resulting from Dodd-Frank. Municipal issuers are supposed to make continuing-disclosure filings of events affecting their outstanding bond issues (financial statements, ratings changes, tax shortfalls, etc.) like SEC reporting companies do about their securities. But many municipal issuers simply haven't filed continuing disclosures over the years. While the SEC doesn't regulate municipal issuers directly, the Enforcement Staff is on a mission to bring fraud and non-disclosure actions against those municipal issuers who falsely certified their prior disclosure compliance in subsequent bond issues. The MCDC Initiative offers favorable settlement terms for those who self-report by Dec. 1, including a no-money negligence-based settled administrative action, with compliance and disclosure remedial undertakings. Determining whether to self-report involves factual investigation of prior filings, certifications and materiality determinations about event-reporting. Many issuers will have been "thrown under the bus" by the SEC's earlier self-reporting deadline for underwriters. Enforcement's description of the MCDC Initiative is here. The first case brought against an issuer under the Initiative is In re Kings Canyon Joint Unified School District, Admin. Proc. No. 3-15966, '33 Act Rel. No. 9610 (July 8, 2014), here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. © 2014 by Thomas K. Potter, III (all rights reserved)