Happy Monday fellow Issuers! I hope everyone had a wonderful Father’s Day weekend with family and friends.
After last Thursday’s breaking MCDC Enforcement News, we wanted to take a little extra time with this week’s edition – after spending the weekend with the amazing husbands & dads in our lives.
So, here goes…This week’s MCDC-Focused Monday Muni Minutes – Read Below!
CURRENT EVENTS
What’s Next for MCDC Enforcement? Read the Order for Clues…
Last Thursday, Issuer 2 Issuer members received a special e-mail from me with press release details of the breaking news – that the SEC had issued its first mass-enforcement order under 
the MCDC – against 36 underwriters – for a total fine of $9.3 million.
That’s a big deal…rather expected, but a big deal nonetheless.
Of course, issuers were interested and the obvious question was “what’s next?” As promised in Thursday’s breaking blog notice to you…
…as this news is so impactful to issuers, we dug a little deeper…
We did that by going right to the source: SEC Release No. 9848 June 18, 2015 dated June 18, 2015, which is “In the Matter of: Certain Underwriters Participating in the Municipal Continuing Disclosure Cooperation Initiative,”
Here are the main facts under this action:
- It was released under five separate provisions of the SEC Act of 1933
- It was “administrative” in nature
- “Non-scienter” actions. Scienter having the meaning “Guilty knowledge that is sufficient to charge a person with the consequences of his or her acts.”
- There are 36 proceedings listed – a separate one for each underwriter fined
- Without admitting guilt – each agreed to “cease and desist” from further violations
- It granted waivers of the disqualification / safe harbor provisions under the Act
- It granted waivers from each underwriter becoming an “ineligible issuer”
- The underwriters agreed to retain independent consultants and implement improvements to their due diligence practices
- Firms will need to go through a process to reinstate their FINRA membership
Ten of the 36 underwriters received the maximum fine…
While the dollar amounts fined were not specifically disclosed under Release No 9848, the maximum amount that could be fined was $500,000, based on the dollar volume of deals each underwriter had and the number/types of violations voluntarily disclosed.
Is there more to come? Read these two paragraphs from Release No. 9848
“The MCDC Initiative resulted in a large number of underwriters and other participants self-reporting potential non-scienter based violations of the federal securities laws and has 
generated much-needed attention within the municipal underwriter community about continuing disclosure compliance, the disclosure process, and due diligence.
The MCDC Initiative has allowed the Commission to address an industry-wide problem, in part through cooperation and other significant remedial undertakings by the participants, while avoiding the expenditure of significant resources typically associated with identifying and conducting full investigations of potential securities law violations.” [Emphasis added by me]
Now, here are some additional points to remember as well.
- Underwriters paid these fines because they were deemed to have failed to conduct adequate due diligence to identify misstatements when offering bonds under SEC Rule 15c2-12
- What will this mean for due diligence efforts on future bond deals?
- This order covers underwriters who dealt with roughly 70% of the total bonds underwritten
- Think about that – cease and desist orders on 70% of the dealers who take our bonds to market
- The violations cited were from 2010 to 2014…
- what about earlier bonds outside the original look-back period?
- This order and the MCDC deals with continuing disclosure…
- what about bond audits?
One point seems pretty clear – this is not over – by a long shot.
We all knew when the MCDC broke last year that the entire muni community was entering “a new era of enforcement.”
While there has been much debate about the process the vast majority of issuers and underwriters went through in complying under the MCDC, one thing is certain…enforcement efforts are not over.
In fact, I would venture to say that they are just beginning.
Given the high number of issuers and underwriters who participated…and some of the details which were disclosed, the SEC has a much clearer picture regarding their hunch on just how pervasive the level of non-compliance on the $3.6 trillion municipal bond market was…
So…that leads me to the next two questions…
Q1: What can we expect for “the next wave” of enforcement that the SEC has already promised?
My hunch: There has been some serious “comparing of notes” between what the underwriters disclosed in September and what the issuers did a couple of months later.
I also believe that the SEC and IRS have teamed up to “share information” so they can each implement stronger enforcement actions and achieve their respective missions of transparency, accuracy and “doing better and more with less.”
Q2: How does your bond compliance program and continuing disclosure reporting look…right now? Would you pass further SEC questions…or an IRS audit?
My hunch: Based on numerous presentations and trainings I have facilitated over the last year, there still appears to be significant gaps – both on the reporting side as well as the actual “I can pass an IRS audit” side.
If you have doubts or questions, please get help to make sure you are compliant. Talk to your bond counsel and take a look at our free basic training PIC Basics and also our value-packed series PIC Essentials, the Audit-Proven Blueprint, which will be released on our website this week.
Let us know what other issuer-focused trainings are of interest to you too. We are here to help – simply, effectively, affordably and…compliantly.
[Editor’s Note: Expect to read more about this in the coming weeks. In case you missed them, please refer to the last two week’s editions of the Muni Minutes for articles – via these links – on both the Issuer/GFOA conference and Underwriter’s perspectives prior to the SEC Order being released last week. If you are interested, grab the proceeding number and check out the actual proceedings by number – here.]
OUT & ABOUT
Conferences:
The Bond Buyer’s Midwest Municipal Market Symposium
June 30, 2015 InterContinental Chicago Magnificent Mile, Chicago, IL
Resources:
Check out the “muni deal of the week”…and look at it from the bondholder’s perspective.
On-Demand Post Issuance Compliance Training for Issuers
“Compliance Basics” – a Free, 3-part video training, plus the Monday Muni Minutes
On-Demand Webinar
Resource: On Demand Replay of Continuing Disclosure after MCDC
Slides: Final Slide Deck for Continuing Disclosure after MCDC
Muni Market Minute Updates
(Quick news bits on topics we’ve covered in earlier MMM editions!)
The BRIDGE Act…Coming to a Road Project Near You?
As we continue to watch debate on the Highway Trust Fund funding debacle, the Building and Renewing Infrastructure for Development and Growth in Employment Act (BRIDGE Act) is being considered in the Senate.
BRIDGE would allow direct loans and guarantees which will help pay for “significant” regional and national infrastructure projects.
Introduced by Senator Mark Warner, D-Va, it would create the Infrastructure Financing Authority to help address the crumbling problems our transportation system is experiencing…and create jobs.
“The BRIDGE Act will create jobs, keep American businesses competitive, and expand U.S. commerce and trade,” he said.
Warner continued, “At a time when Congress has once again kicked the can down the road – passing 33 short-term patches instead of a long-term surface transportation bill – this
legislation demonstrates that there is a real willingness to work together in a responsible, bipartisan way to get moving on important investment priorities.”
Additionally, the BRIDGE Act would also increase the PABs limit from $15 billion to $16 billion.
[Editor’s Note: The HTF continues to be a political and economic hot potato. At this point, funding is expected to expire in August…and we are wasting valuable “optimal weather” repair time as States continue to sit on the sidelines with deferred projects. My dad is calling it “barrel season” – there are lots of barrels out – but not so much activity.]
Wayne County Files for Financial Emergency
If you recall, in our June 15th edition, we talked about the roller coaster Wayne County, MI has already been on…with a win for their OPEB problem – and the $20 million savings, but followed with having the first official “bankruptcy” discussion during their $187 million note offering road show with Orrick, Herrington and Sutcliffe brought on as special bankruptcy counsel.
On Wednesday of last week Wayne County’s Executive Warren Evans took the next step: asking in a formal letter to Nick Khouri, Michigan’s Treasurer. that a financial emergency be declared…right before they sell the notes.
In the submission, Evans cites four main reasons:
- General Fund deficits
- Credit Rating deterioration
- Judgment Levy of just under $50 million with the County Employee Retirement System
- Additional facts – primarily related to underfunded pensions and need for additional infrastructure
You can read the full submission here.
We hope you found this week’s MCDC Focus edition of the Monday Muni Minutes valuable and informative.
Chat soon!
As always, your comments are welcome…scroll down and let us know what you think about any of the articles!
To your compliance success,
Debbie
The greatest compliment you can pay us is to share this newsletter with your issuer friends….
P.S. Remember, invite your issuer friends to join us on Issuer 2 Issuer and to get their free online training, PIC Basics! We will also be re-releasing PIC Essentials very soon and 
letting you know via e-mail – let your issuer friends know, in case they could also use practical and affordable issuer-focused post issuance compliance training!
P.P.S Want a one-click way to get faster information? If you are on LinkedIn, you can get access to breaking muni news articles as well as interesting compliance tips and resources, posted by us during the week. Join our private Group Page, and follow us on our Company Page.