(MA) Rule - Florida Government Finance Officers Association

Webinar Series
“The New Securities and Exchange Commission
Municipal Advisor (MA) Rule”
“The New Securities and Exchange Commission
Municipalities Continuing Disclosure Cooperation (MCDC)
Webinar Series
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
Overview of the
Final Municipal Advisor Registration Rules
Introduction and Background
Response to Issues in 2008 Financial Crisis
• Concerns 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.
Introduction and Background
Statute and Purpose
• In 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.
SEC Final Rules and Interpretive Guidance
SEC Final Rules
• SEC adopted final municipal advisor registration rules on
September 20, 2013. See
• These final municipal advisor rules went into effect on July 1,
SEC Final Rules and Interpretive Guidance
SEC Interpretive Guidance
• SEC Staff issued interpretive guidance on municipal advisor
registration rules (“Frequently Asked Questions” or “FAQs”)
on January 16, 2014 and May 19, 2014. See
Municipal Advisor Rules Regulate Advisors to Municipal
Entities—They Do Not Regulate Municipal Entities
Regulated Persons
• The 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
Municipal Advisor Rules Regulate Advisors to Municipal
Entities—They Do Not Regulate Municipal Entities
Broad Exemption for Public Officials
• The 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.
Municipal Advisor Rules Regulate Advisors to Municipal
Entities—They Do Not Regulate Municipal Entities
Broad Exemption for Public Officials
• This 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.
Statutory and Regulatory Framework
Statutory Municipal Advisor Definition
• The 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.
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
Advice Standard
General guidelines on what constitutes “advice” under the final
• 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
General Information is Not Advice
Examples of “general information” that is not considered
• 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.
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
Process for Determining Bond Proceeds
Written Representation Process for Determining Bond Proceeds
The final municipal advisor rules provide a process for
determining whether funds to be invested are municipal bond
• 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
Process for Determining Bond Proceeds
Nonexclusive Process
• This 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 Expect
• Municipalities 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.
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.
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.
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.
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.
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
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
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.
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 CFTCregistered 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).
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.
Implementation of Final Municipal Advisor Rules
SEC Implementation.
• The SEC’s final municipal advisor rules went into effect on July
1, 2014. 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”) .
Implementation of Final Municipal Advisor Rules
Municipal Securities Rulemaking Board (“MSRB”)
The MSRB is developing rules for municipal advisors on subjects,
• The fiduciary duty owed by municipal advisors to act in the
best interests of their municipal entity clients and what that
• MSRB registration, supervisory obligations, professional
qualifications and training, pay-to-play restrictions, and fees.
Certain Additional Information on Municipal Advisors
• Municipal Advisor Final Registration Forms Received (Available After July 1,
2014): http://www.sec.gov/edgar/searchedgar/companysearch.html
• SEC Staff FAQs: http://www.sec.gov/info/municipal/mun-advisors-faqs.shtml.
• SEC Office of Municipal Securities: http://www.sec.gov/municipal
• MSRB: http://www.msrb.org/MSRB-For/Municipal-Advisors.aspx
MA Rule – GFOA Alert
• GFOA’s Website – GFOA.org
– Click on Products & Services – News and
• MA Rule Alert – published May 14, 2014 contains links to
the following:
– 10-page issue brief on the Rule
– Full text of the MA Rule
– SEC’s FAQs on the MA Rule
– GFOA Best Practices updated to reflect MA Rule
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 capacity
• Regulates MAs and places a fiduciary duty on them
• Only professionals with a fiduciary duty to state and
local governments may provide “advice”, unless an
exemption is met
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 proceeds
– Discusses the appropriate use of exemptions to the MA
Rule and provides model document language for
governments to use for each exemption
MA Rule – GFOA Best Practices
• 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 inhouse expertise to consider and develop bond
– GFOA revised three Best Practices in 2014 to
incorporate language relative to the MA Rule:
• Selecting and Managing the Engagement of Municipal Advisors
• Selecting and Managing the Engagement of Underwriters for
Negotiated Bond Sales
• Selecting and Managing the Method of Sale of Municipal
SIFMA Model Documents
With GFOA assistance, the Securities Industry and Financial
Markets Association (SIFMA) has developed model
documents to help UWs implement the exemptions from
the Rule. Available at www.sifma.org/MAForms
• IRMA representation with UW reciprocal disclosures
• Engagement letter with attached G-17 disclosures
• RFP/RFQ language
• UW exemption for remarketing agents
• Disclosure/disclaimers
• Bond proceeds certificate
Issues with Implementation of IRMA Exemption
• Determining whether the independence tests are met is
the biggest challenge
• Issuers frequently do not name their individual advisors in
their IRMA representations
• The independence tests must be monitored in case prior
dealer employees move from one MA firm to another
• Independence tests are problematic in the case of large
MA firms
• Must UWs track whether non-muni employees move to
MA firms?
Issues with UW Exemption
• Most difficult to implement for non-profits
• They do not always have municipal advisors and usually do
not do RFPs
• They are the least educated about the Rule
• If 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
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
Key will be Financial Industry Regulatory Authority (FINRA)’s
interpretation of “advice”. Many dealers have a pitch book
review process.
Issues with Advice on Investment of Bond Proceeds
• Very slow process to identify accounts
• Systems for account opening and identification must be
• Brokers 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 concern
• Waiting on revised Municipal Securities Rulemaking Board
(MSRB) Rule G-42.
Overview of the
Municipalities Continuing Disclosure Cooperation
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.
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
• The Securities Exchange Act of 1934 primarily regulates
secondary market transactions.
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.
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).
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, lineitem, 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.
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.
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.
SEC Enforcement
• SEC 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
• Negligence is sufficient to prove violations of Section 17(a)(2)
or (3) of the 33 Act.
SEC Enforcement
• Section 10(b) of the 34 Act and Rule 10b-5 contain similar
prohibitions and also require that the incorrect or omitted fact be
• 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.”
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.
MCDC Initiative
• In 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.
MCDC Initiative
• Due to the typical five-year stature of limitations for securities
law violations, the MCDC Initiative covers bond transactions
dating back to September 2009. 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.
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.
MCDC Initiative
• Under 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
– disclose in a clear and conspicuous fashion the settlement terms in any
final official statement for the next 5 years; and
– provide 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.
MCDC Initiative
• For 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;
MCDC Initiative
• However, 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 overreport transactions with potential misstatements.
MCDC Initiative
• The 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.
MCDC Initiative
• The 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.
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.
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
Concerns Raised So Far
• A 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.
GFOA Alert
The 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.
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; or
– An 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.
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; or
– Contact appropriate transaction participants such as UW counsel,
disclosure counsel, financial advisor or bond counsel.
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
– Adopt polices and procedures that require all filings on EMMA to be
documented and maintained.
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; and
– Consents in advance to all settlement terms (which will likely require
governing body approval prior to submission).
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.
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:
• http://gfoa.org/gfoa-alert-sec-mcdc-initiative-and-issuers
The GFOA MCDC Alert can be found at:
• http://gfoa.org/gfoa-alert-sec-mcdc-initiative-and-issuers

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