Securities Litigation

Responding to industry complaints, the SEC's Enforcement Division modified its Municipal Continuing-Disclosure Cooperation ("MCDC") Initiative to (a) extend the deadline for issuer disclosures until December 1 (from September 1) and (b) implement a tiered set of caps on fines, more proportional to underwriters' revenues. Announced last March, the Initiative offers standardized terms for settlement of administrative proceedings for those municipal-securities-market participants who admit their participation in securities offerings having mis-stated a public issuer's compliance with obligations to make continuing-disclosure filings about the issuer's finances. Under the program, public issuers agreeing to the settlements neither admit nor deny SEC misrepresentation allegations: Issuers agree, instead, to adopt new compliance policies, update all prior disclosures, continue to cooperate with Commission and report the settlement for five years. The SEC announced its first settled action against Kings Canyon Joint Unified School District earlier this month. We reported on that case in our July 23 blog, here. Unlike issuers, underwriters also face fines of $20,000-$60,000 per offering. The Initiative originally capped underwriters' aggregate fines at $500,000. Yesterday's announcement modified the cap according to an underwriter's total annual revenue, setting three cap levels at $500,000 (over $100 million), at $250,000 ($20-100 million), and $100,000 (under $20 million). Reporting broker-dealers also must agree to settled proceedings, independent compliance review and continued cooperation. Underwriters still must self-report by September 10 to participate in the initiative. The SEC's announcement (News Rel. 2014-156) is 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)