Presentation on theme: "FGFOA Webinar Series “The New Securities and Exchange Commission Municipal Advisor (MA) Rule” And Municipalities Continuing Disclosure Cooperation (MCDC)"— Presentation transcript:
1 FGFOA Webinar Series “The New Securities and Exchange Commission Municipal Advisor (MA) Rule” And Municipalities Continuing Disclosure Cooperation (MCDC) Initiative”
2 FGFOA Webinar Series Presenters John Cross, Securities and Exchange Commission Peg Henry, Jefferies Muni Legal Alexandra MacLennan, Squire Patton Boggs Ben Watkins, State of Florida Division of Bond Finance
3 Overview of the Final Municipal Advisor Registration Rules
4 Introduction and Background Response to Issues in 2008 Financial CrisisConcerns arose in 2008 financial crisis about unregulated or unqualified financial advisors to municipal entities, advisors with conflicts of interest, issues involving pay-to-play, and advice on complex municipal derivatives in which municipal entities suffered significant losses.
5 Introduction and Background Statute and PurposeIn response to these concerns, in the Dodd-Frank Act, Congress added a broad new requirement that “municipal advisors” register with the Securities and Exchange Commission, effective October 1, 2010.This municipal advisor provision aims to enhance protections to municipal entities and it imposes a new fiduciary duty on municipal advisors to act in the best interests of their municipal entity clients.
6 SEC Final Rules and Interpretive Guidance SEC adopted final municipal advisor registration rules on September 20, SeeThese final municipal advisor rules went into effect on July 1, 2014.
7 SEC Final Rules and Interpretive Guidance SEC Interpretive GuidanceSEC Staff issued interpretive guidance on municipal advisor registration rules (“Frequently Asked Questions” or “FAQs”) on January 16, 2014 and May 19, See
8 Municipal Advisor Rules Regulate Advisors to Municipal Entities—They Do Not Regulate Municipal EntitiesRegulated PersonsThe municipal advisor rules regulate certain persons who provide advice to municipal entities and obligated persons on certain subjects.The municipal advisor rules do not regulate municipal entities themselves.
9 Municipal Advisor Rules Regulate Advisors to Municipal Entities—They Do Not Regulate Municipal EntitiesBroad Exemption for Public OfficialsThe final municipal advisor rules have a broad exemption for public officials which covers any person (elected or appointed) serving as a member of a governing body, advisory board, committee, or similar official capacity of a municipal entity or obligated person to the full extent that these individuals act within the scope of their official capacities.
10 Municipal Advisor Rules Regulate Advisors to Municipal Entities—They Do Not Regulate Municipal EntitiesBroad Exemption for Public OfficialsThis exemption covers employees of municipal entities and obligated persons that act within the scope of their employment.The May 2014 FAQS clarify further that this exemption also covers advice between employees of different municipal entities (e.g., state government agency and a municipality) that act within the scope of their employment.
11 Statutory and Regulatory Framework Statutory Municipal Advisor DefinitionThe Exchange Act defines the term “municipal advisor” to mean a person that: (1) provides advice to or on behalf of a municipal entity or obligated person with respect to municipal financial products (municipal derivatives, GICs, and “investment strategies”) or the issuance of municipal securities, including advice with respect to the structure, timing, terms, and other similar matters concerning such financial products or issues; or (2) undertakes certain solicitations of a municipal entity.
12 Statutory and Regulatory Framework SEC Registration Absent an Available Exemption.Absent an available statutory or regulatory exemption, a municipal advisor must register with the SEC and is subject to certain training, qualification, and recordkeeping requirements.
13 General guidelines on what constitutes “advice” under the final rules: Advice StandardGeneral guidelines on what constitutes “advice” under the final rules:Facts and Circumstances Standard. First, advice depends on all of the relevant facts and circumstances.Advice Includes Particular Recommendations. Second, advice includes certain “recommendations” that are particular to the specific needs, objectives, or circumstances of a municipality.Advice Does Not Include General Information. Third, advice excludes certain general information that does not involve a recommendation.
14 General Information is Not Advice Examples of “general information” that is not considered “advice”:Information of a factual nature without subjective assumptions, opinions or views.Information that is not particularized to a specific municipal entity or type of municipal entity.Information that is widely disseminated for use by the public.General information in the nature of educational materials.
15 Covers Advice on Three Subjects Under final rules, a person is required to register as a municipal advisor if the person provides advice on one of three subjects:(1) issuance of municipal securities, including structure, timing, terms, and other similar matters with respect to such issuance (interpreted broadly time-wise, from early planning to bond redemption);(2) investments of proceeds of municipal securities and the recommendation of and brokerage of municipal escrow investments under “investment strategies” definition; and(3) municipal derivatives (swaps and security-based swaps).
16 Process for Determining Bond Proceeds Written Representation Process for Determining Bond ProceedsThe final municipal advisor rules provide a process for determining whether funds to be invested are municipal bond proceeds:A person may rely on a written representation made by a knowledgeable official of a municipal entity or obligated person regarding whether invested funds are municipal bond proceeds. A person must have “reasonable basis” for such reliance.
17 Process for Determining Bond Proceeds Nonexclusive ProcessThis process of reliance on written representations from municipal entities or obligated persons is not the exclusive means for determining whether invested funds are municipal bond proceeds.What Municipalities Should ExpectMunicipalities should expect and appreciate that their investment advisors may seek representations from them about whether invested funds are municipal bond proceeds, because this affects whether advisors need to register with the SEC as municipal advisors.
18 Statutory and Regulatory Exemptions The statutory municipal advisor provision includes a series of statutory exemptions to the definition of a municipal advisor. The final municipal advisor rules interpreted the statutory exemptions and also provided certain additional regulatory exemptions. The exemptions focus on certain identified activities of market participants as opposed to the status of market participants.
19 Statutory and Regulatory Exemptions Broad exemption for public officials. As noted an earlier slide, the final rules include a broad exemption for public officials (both elected and appointed) and public employee who provide advice when acting within the scope of their official capacities.The next several slides highlight certain exemptions that are relevant to municipal entities and how they obtain advice from their advisors.
20 Independent Registered Municipal Advisor Exemption An important new exemption permits free flow of information between market participants and municipalities when the municipality is represented by an independent registered municipal advisor.To qualify for this exemption, a market participant must receive a written representation from the municipality that the municipality (1) is represented by, and (2) will “rely on“ the advice of its independent registered municipal advisor. The May 2014 FAQS clarified that this “rely on” language means that the municipality must “seek and consider the advice, analysis, and perspective of its independent registered municipal advisor (but NOT that it must follow) such advice. A municipality may post a representation to this effect on its official website.
21 Independent Registered Municipal Advisor Exemption Requires written disclosure to the municipality that person relying on exemption is not a municipal advisor and not subject to any fiduciary duty.The independence test looks at certain entity-level and individual-level associations between the registered municipal advisor and the market participant for a two-year period. The individual-level analysis focuses in part on participation of certain individuals in municipal entity activities.
22 Underwriter Exclusion Exclusion for brokers, dealers, and municipal securities dealers serving as underwriters.Covers underwriter’s advice on the issuance of municipal securities (including structure, timing, terms, and other similar matters) from the time of engagement as underwriter on a particular transaction through the end of underwriting period.
23 Underwriter Exclusion An issuer’s engagement of an underwriter may be on a preliminary basis, subject to conditions such as the approval by issuer’s governing body.Does not cover advice on investment of proceeds or municipal derivatives.
24 Request for Proposal or Qualifications Exemption Allows issuers to solicit ideas and advice from market participants in a competitive process.Covers written or oral responses to an issuer’s request for proposals (RFP) or request for qualifications (RFQ) that targets 3 or more market participants; provided that the person does not receive separate direct or indirect compensation for advice provided as part of such response.Covers written or oral responses to an issuer’s “mini-RFP” that targets 3 or more pre-screened or pre-qualified recipients.No formal procurement process is required.
25 Other Statutory and Regulatory Exemptions Set forth below is a brief summary of other exemptions to the municipal advisor definition:Registered investment advisers—covers SEC-registered investment advisers that provide investment advice.Registered commodity trading advisors—covers CFTC-registered commodity trading advisors that provide advice related to swaps.Banks—covers certain identified traditional banking activities (e.g., deposits, extensions of credit, loans, and direct purchases of municipal securities for their own account).
26 Other Statutory and Regulatory Exemptions Set forth below is a brief summary of other exemptions to the municipal advisor definition:Attorneys—covers legal advice and traditional legal services, but not attorneys that hold themselves out as financial advisors or financial experts.Accountants—covers accountants that provide audit or other attest services, prepare financial statements, or issue letters for underwriters.Engineers—covers engineering advice.
27 Implementation of Final Municipal Advisor Rules SEC Implementation.The SEC’s final municipal advisor rules went into effect on July 1, Municipal advisors are required to register with the SEC using the final registration forms on a staggered basis over a four-month phase-in period, beginning on July 1, 2014.Information regarding firms registered with the SEC as municipal advisors under the final rules and associated individuals will be publicly available on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) .
28 Implementation of Final Municipal Advisor Rules Municipal Securities Rulemaking Board (“MSRB”) ImplementationThe MSRB is developing rules for municipal advisors on subjects, including:The fiduciary duty owed by municipal advisors to act in the best interests of their municipal entity clients and what that entails.MSRB registration, supervisory obligations, professional qualifications and training, pay-to-play restrictions, and fees.
29 Certain Additional Information on Municipal Advisors Municipal Advisor Final Registration Forms Received (Available After July 1, 2014):SEC Staff FAQs:SEC Office of Municipal Securities:MSRB:
30 MA Rule – GFOA Alert GFOA’s Website – GFOA.org Click on Products & Services – News and AnnouncementsMA Rule Alert – published May 14, 2014 contains links to the following:10-page issue brief on the RuleFull text of the MA RuleSEC’s FAQs on the MA RuleGFOA Best Practices updated to reflect MA Rule changes
31 MA Rule – GFOA Alert Content of Alert: Provides background/overview of MA Rule and alerts issuers to key points:Rule does not regulate governments – provides exemption for state and local government employees, board and committee members when acting in their official capacityRegulates MAs and places a fiduciary duty on themOnly professionals with a fiduciary duty to state and local governments may provide “advice”, unless an exemption is met
32 MA Rule – GFOA Alert Content of Alert, Continued: Discusses interaction between underwriters and issuers after July 1, 2014 and clarifies how SEC defines “advice” and “Municipal Advisor”Discusses how “advice” from underwriters is construed with respect to the investment of bond proceedsDiscusses the appropriate use of exemptions to the MA Rule and provides model document language for governments to use for each exemption
33 MA Rule – GFOA Best Practices MA Rule is consistent with GFOA Best Practices, which recommend use of a municipal advisor except in circumstances where the government has sufficient in-house expertise to consider and develop bond transactionsGFOA revised three Best Practices in 2014 to incorporate language relative to the MA Rule:Selecting and Managing the Engagement of Municipal AdvisorsSelecting and Managing the Engagement of Underwriters for Negotiated Bond SalesSelecting and Managing the Method of Sale of Municipal Bonds
34 SIFMA Model DocumentsWith GFOA assistance, the Securities Industry and Financial Markets Association (SIFMA) has developed model documents to help UWs implement the exemptions from the Rule. Available atIRMA representation with UW reciprocal disclosuresEngagement letter with attached G-17 disclosuresRFP/RFQ languageUW exemption for remarketing agentsDisclosure/disclaimersBond proceeds certificate
35 Issues with Implementation of IRMA Exemption Determining whether the independence tests are met is the biggest challengeIssuers frequently do not name their individual advisors in their IRMA representationsThe independence tests must be monitored in case prior dealer employees move from one MA firm to anotherIndependence tests are problematic in the case of large MA firmsMust UWs track whether non-muni employees move to MA firms?
36 Issues with UW Exemption Most difficult to implement for non-profitsThey do not always have municipal advisors and usually do not do RFPsThey are the least educated about the RuleIf engagement letter preceded the Rule, but the transaction is ongoing, must the G-17 disclosures be made to satisfy the exemption if G-17 would not have required them?
37 Guidance on “Advice”Guidance on what is and is not “advice” has proved very useful. Pitch books can provide enough information to get a client interested in signing a preliminary engagement letter. Key will be Financial Industry Regulatory Authority (FINRA)’s interpretation of “advice”. Many dealers have a pitch book review process.
38 Issues with Advice on Investment of Bond Proceeds Very slow process to identify accountsSystems for account opening and identification must be changedBrokers must be trained. Some firms are closing accounts with bond proceeds because of compliance concerns.Lack of guidance on what it means for a broker to have a fiduciary duty is a concernWaiting on revised Municipal Securities Rulemaking Board (MSRB) Rule G-42.
40 Overview of the Municipalities Continuing Disclosure Cooperation Initiative
41 What is the MCDC Initiative? On March 10, 2014, the SEC Enforcement Division announced the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative to provide issuers and underwriters the opportunity to self-report instances of material misstatements in bond offering documents regarding the issuer’s prior compliance with its continuing disclosure obligations.The deadline for self-reporting is September 10, 2014.This initiative is the first of its kind in the municipal market and is viewed as “gift” by the SEC Division of Enforcement, however, the initiative is causing much angst among underwriters and issuers.
42 Municipal Securities Regulation In order to appreciate the seriousness of this initiative and provide perspective, an overview of the federal regulatory landscape in the municipal market might be helpful.The Securities Act of 1933 regulates primary market transactions.The Securities Exchange Act of 1934 primarily regulates secondary market transactions.
43 Municipal Securities Regulation The U.S. Securities and Exchange Commission, created under the 34 Act to enforce federal securities laws.The mission of the SEC is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.The main purposes of the 33 Act and the 34 Act can be reduced to two common-sense notions:Companies publicly offering securities for investment dollars must tell the public the truth about their businesses, the securities they are selling, and the risks involved in investing.People who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly, putting investors' interests first.
44 Municipal Securities Regulation Municipal securities are generally exempt from the registration requirements of the 33 Act.Governmental entities are generally exempt from the reporting requirements of the 34 Act.Not exempt from the anti-fraud provisions of the 33 Act and the 34 Act.The SEC derives its powers over the municipal marketplace by virtue of its ability to regulate municipal broker-dealers and its power to enforce the anti-fraud provisions.Over the past 20 years the municipal market has grown significantly and with that growth has come a heightened interest in the market by the SEC.SEC enforcement activity in the municipal market is becoming more frequent and is not limited to investigations after default (Washington Public Power Supply System) or bankruptcy (Orange County, CA).
45 Municipal Securities Regulation In July 2012, the SEC published a report of the status of the municipal market that included several recommendations to improve both disclosure in the municipal market and transparency for pricing in the secondary market trading.SEC Commissioners have stated on numerous occasions that Congress should repeal the so-called “Tower Amendment” to provide the SEC full regulatory authority over municipal issuers, including the ability to provide corporate style, line-item, disclosure.The Tower Amendment prohibits the SEC from establishing a full-blown regulatory regime for municipal securities by restricting the SEC’s authority over municipal issuers.The SEC is moving its agenda forward through increased enforcement actions.
46 Overview of Disclosure Requirements Disclosure is generally divided into two areas:Primary disclosure made when bonds are first issued or remarketed. This disclosure is typically made in an “official statement” or “OS”. The OS will contain, among other matters, financial information, operating data, a description of the security for the bonds being offered, as well as a description of the continuing disclosure covenants an issuer has agreed to comply with for the bonds being offered.Continuing disclosure made on an annual or other periodic basis under a Continuing Disclosure Agreement pursuant to Rule 15c2-12 or otherwise. Includes both annual filings of financial information and operating data and event notices.Primary responsibility for the accuracy of the OS and continuing disclosure filings lies with the issuer. This responsibility cannot be delegated to outside consultants.
47 Overview of Disclosure Requirements Rule 15c2-12 requires the OS to include a description of any instances in the past 5 years where the issuer has failed to comply in all material respects with its continuing disclosure undertakings entered into for any other bonds.
48 SEC EnforcementSEC enforcement actions against municipal issuers are generally brought under either Section 17(a) of the 33 Act or Section 10(b) of the 34 Act and Rule 10b-5 thereunder.Section 17(a) of the 33 Act prohibits obtaining money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.A fact is material if there is a substantial likelihood that a reasonable investor would have viewed the information as “having significantly altered the ‘total mix’ of information available.”Negligence is sufficient to prove violations of Section 17(a)(2) or (3) of the 33 Act.
49 SEC EnforcementSection 10(b) of the 34 Act and Rule 10b-5 contain similar prohibitions and also require that the incorrect or omitted fact be material.In addition, these provisions require a showing that defendants or respondents acted with “scienter,” or a culpable state of mind.The scienter requirement for antifraud violations may be satisfied by a showing of recklessness as well as a showing of guilty knowledge and intent. The state of mind may be shown by circumstantial evidence.Recklessness has been defined as “extreme departure from the standards of ordinary care, and which represents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.”
50 West Clark Community Schools West Clark Community Schools (July 29, 2013) - Issuer told investors in a 2007 official statement that is was in material compliance with all previous continuing disclosure undertakings when it had failed to make any annual filings. The SEC charged the issuer with violation of anti-fraud rules stating that prior compliance with continuing disclosure undertakings was material.
51 MCDC InitiativeIn reaction to what the SEC saw in the West Clark matter, the SEC announced the MCDC Initiative on March 10, 2014 which permits issuers, obligated persons and underwriters, for a limited time only, to self-report misstatements concerning prior compliance with continuing disclosure obligations in an official statement for a municipal bond issue.In exchange, the SEC Division of Enforcement agrees to recommend “favorable” settlement terms for issuers and obligated persons, as well as for underwriters involved in the offering of those municipal securities.
52 MCDC InitiativeDue to the typical five-year stature of limitations for securities law violations, the MCDC Initiative covers bond transactions dating back to September However, since final official statements must disclose compliance failures for the five prior years, the scope of the initiative actually looks back to 2004 (covering 10 years of continuing disclosure filings.
53 MCDC Initiative For example: A local government issued bonds in 2007 and entered into a continuing disclosure agreement to provide annual information and material event notices.That same local government issued additional debt in 2010 and included in its official statement a statement that it had complied with all prior continuing disclosure undertakings.If that statement was materially inaccurate, then the MCDC Initiative offers a procedure for the issuer to settle with the SEC and resolve any federal securities liability with respect to the misstatement without paying a financial penalty to the SEC.Whether a misstatement is “material” is likely to be a significant issue in many, if not all, cases.
54 MCDC InitiativeUnder the MCDC Initiative, if the SEC concludes there has been a violation, the agreed upon settlement terms would require the issuer to do the following as part of an agreed cease and desist order resolving the SEC proceeding:establish policies and procedures and training regarding continuing disclosure obligations;comply with existing continuing disclosure undertakings and bring all prior filings up to date;cooperate with any subsequent investigation by the Division regarding the false statement(s), including the roles of individuals and/or other parties involved;disclose in a clear and conspicuous fashion the settlement terms in any final official statement for the next 5 years; andprovide the SEC staff with a compliance certification on the one year anniversary of the settlement date.But, for issuers, there will be no financial penalty.
55 MCDC InitiativeFor underwriters, the terms are not as favorable and require the underwriter to engage a consultant to do a compliance review and make recommendations regarding the underwriter’s due diligence process and procedures; cooperate with any subsequent investigation by the SEC regarding the false statement(s), including the roles of individuals and/or other parties involved.Additionally, the recommended financial penalties for underwriters are:For offerings of $30 million or less, the underwriter must pay $20,000 per offering containing a materially false statement;For offerings of more than $30 million, the underwriter must pay $60,000 per offering containing a materially false statement;
56 MCDC InitiativeHowever, no underwriter will be required to pay more than $500,000 total in civil penalties under the MCDC Initiative.This cap on civil penalties incentivizes underwriters to over-report transactions with potential misstatements.
57 MCDC InitiativeThe initiative provides no protection for any individuals, including issuer officials and employees, underwriter employees, the financial advisor and its employees and the lawyers in the deal, including bond counsel, disclosure counsel and underwriter’s counsel.To participate in the initiative, the issuer must complete and submit a questionnaire that identifies the entire working group and must agree to cooperate with the SEC in any subsequent investigation regarding the misstatements.It is very important to understand and appreciate that the MCDC Initiative is tantamount to voluntarily submitting to an SEC enforcement proceeding.Governing body approval is likely required in order to submit the questionnaire.
58 MCDC InitiativeThe MCDC Initiative expires September 10, 2014, after which there is no assurance the Division of Enforcement will recommend the same settlement terms for issuers and underwriters that do not self-report pursuant to the terms of the MCDC Initiative.In fact, the Division specifically stated that it will likely recommend and seek financial sanctions in amounts greater than those available under the MCDC Initiative.
59 Underwriter Community Reaction The underwriter community is actively conducting internal compliance investigations by reviewing OS’s for all bonds underwritten over the past 5 years and associated continuing disclosure filing data, to confirm if the official statements accurately described the issuer’s prior compliance with continuing disclosure obligations.In most cases, the underwriter lists will be compiled using continuing disclosure filings since 2009 made on EMMA. However, filings prior to 2009 were made to the dysfunctional Nationally Recognized Municipal Securities Information Repository system. This is likely to lead to many erroneous findings of failures to file.
60 Underwriter Community Response Although underwriters are being encouraged to contact issuers with the results of their review, they are not required to do so. Because of the unreasonably short deadline, they may not have time to do so.The cap of $500,000 on penalties imposed on underwriter incentivizes underwriters to over-report cases of potential misstatements.
61 Concerns Raised So FarA 10 year “look back” would include filings made on the old “NRMSIR” system which was largely paper-based filings with no reliable retrieval process.No guidance from the SEC on what types of non-compliance might be considered “material” for purposes of this initiative.The “prisoner’s dilemma” pits underwriters against issuers with underwriters likely to report transactions that issuers would not.The punitive approach being taken by the SEC Division of Enforcement may hurt efforts to expand voluntary disclosure by issuers in the municipal market.
62 GFOA AlertThe GFOA has issued an alert on the MCDC Initiative, which provides guidance on self-examination and details the standardized settlement terms and individual liability for issuers and UWs.The GFOA urges members to exercise caution and familiarize themselves with the details of the initiative before consenting to engage in this program. For example, though the terms of the initiative preclude SEC from imposing monetary fines on participating issuers, the SEC has reserved the right to pursue separate enforcements against individuals within a government who it deems to be culpable of misstatements. Additionally, the terms of the initiative require the issuer to consent to a cease and desist order from the SEC.
63 GFOA Guidance on Self-Examination An issuer can disregard the MCDC Initiative entirely if it has not issued bonds within the last five years.An issuer can disregard the MCDC Initiative entirely if an issuer has issued bonds within the last five years but has:Personal knowledge and documentation that continuing disclosure filings required by the CDA have been made;Policies and procedures in place to ensure compliance; orAn outside vendor or counsel under contract engaged to assist with continuing disclosure filings that can confirm continuing disclosure compliance for the five year period.It is not necessary to engage a vendor to conduct examination of an issuer’s compliance.
64 GFOA Guidance on Self-Examination If an issuer has publicly offered bonds since September 10, 2009 and is unsure whether it has complied with continuing disclosure obligations, it should review the description of past compliance in any OS for bonds issued in the past five years.If the description in the OS says the issuer is in compliance, consider the best way to verify the statement, including:Review of internal files that document filings made on EMMA;Review EMMA to verify filings have been made;Contact the senior managing UW for the bond issue to determine if they have files documenting compliance or are conducting a review of their prior bond deals to identify possible non-compliance; orContact appropriate transaction participants such as UW counsel, disclosure counsel, financial advisor or bond counsel.
65 GFOA Guidance on Self-Examination If an issuer discovers that a final OS potentially contains inaccurate statements relative to past compliance with continuing disclosure obligations, the issuer should:Contact the bond or disclosure counsel to assess the materiality of the misstatement, and determine the best way to proceed if it is determined to be potentially material.Correct any prior non-compliance, if possible.Adopt/enhance policies and procedure to ensure compliance in the future.Adopt polices and procedures that require all filings on EMMA to be documented and maintained.
66 GFOA Recommendations on Considerations prior to Participation Consult with legal counsel and exercise caution.Participation in the MCDC Initiative should be approved by the governing board.Remember that self-reporting does not limit the personal liability of municipal officials and may expose an issuer or official to further SEC investigation and enforcement.Self-reporting requires an issuer to sign and submit a questionnaire. By doing so, the issuer:Agrees to cooperate with the SEC and testify in the event of an SEC investigation; andConsents in advance to all settlement terms (which will likely require governing body approval prior to submission).
67 GFOA Recommendations on Considerations prior to Participation Financial penalties for UW firms are capped at $500,000. As a result, UWs have an incentive to over-report transactions without regard to materiality of misstatement.If contacted by an UW, request the UW list of findings so the issuer can verify they are accurate or not, and to determine whether any inaccuracies are considered material.
68 Standardized Settlement Terms and Individual Liability The GFOA Alert has an appendix that details the settlement terms and individual liability concerns of the MCDC Initiative.The Alert can be found at:
69 Questions/Discussion The GFOA MCDC Alert can be found at:Questions/Discussion