Consent 1.F.
Regular City Council Meeting
- Meeting Date:
- 11/24/2014
- TITLE
- Securities and Exchange Commission Initiative
- PRESENTED BY:
- Patrick M. Weber
- Department:
- City Hall Administration
Presentation:
PROBLEM/ISSUE STATEMENT
The Securities and Exchange Commission (SEC) announced on March 10, 2014, the Municipal Continuing Disclosure Cooperation (MCDC) Initiative to provide issuers and underwriters the opportunity to self-report instances of material misstatements in bond offering documents regarding an issuer’s prior compliance with its continuing disclosure obligations. The deadline for issuers for self-reporting under the Initiative is December 1, 2014.
ALTERNATIVES ANALYZED
City Council may:
- Approve resolution and policy; or,
- Not Approve resolution and policy
FINANCIAL IMPACT
The Finance Department does not anticipate any civil penalties by self-reporting to the SEC.
BACKGROUND
For each of the City’s bond sales, the bond offering documents include undertakings regarding continuing disclosure reporting obligations, including the scope of the information that the City agrees to provide on an annual basis and the timeframe for providing such information. Bond offering documents also include statements regarding the City’s historical compliance with these undertakings.
Since 2005, the City has engaged a third party (the “Reporting Agent”) to track, consolidate and file the City’s continuing disclosure information, including the City’s Comprehensive Annual Financial Report (CAFR) and other miscellaneous operating data.
In connection with the Initiative, the Reporting Agent spent weeks reviewing all official statements and continuing disclosure filings from 2005 through 2013. Following such review, the City’s Finance Department, the Reporting Agent and the City’s Bond Counsel spent two weeks on six different phone calls discussing the Initiative and what the City should do regarding self-reporting.
Tina Volek, Bruce McCandless, Brent Brooks and Pat Weber, in consultation with Bond Counsel, recommend the City self-report for some issues from prior years reporting. A primary factor in the recommendation to self-report is that the underwriter of one of the City’s bond issues has also filed a report with respect to the City. This underwriter reported that the City’s 2005 CAFR had been submitted late. The City shall provide to the SEC that based on the information available to the City and the Reporting Agent, it appears that (i) the City’s CAFR has been filed from one to 18 days late (and in the case of the 2005 CAFR, 90 days late); (ii) supplemental operating data has been filed from one to 18 days late; and (iii) certain operating data has been omitted.
For issuers that self-report, the enforcement division of the SEC will review the information submitted and decide whether to recommend enforcement action against the issuer. If enforcement action is recommended against the issuer, the enforcement division will recommend a settlement in which the issuer consents to a cease and desist proceeding while neither admitting nor denying any wrong doing. Issuers will not be subject to civil penalties, but the settlement terms require certain undertakings. Issuers must (i) adopt policies and procedures to address continuing disclosure obligations, (ii) update past delinquent filings, (iii) cooperate with the enforcement division in subsequent investigations regarding the false statements, (iv) disclose the settlement in any securities offering within the next five years, and (v) provide the SEC with a compliance certification on the one year anniversary of the institution of the proceedings. The SEC reserves the right to pursue separate enforcement actions against individuals who it deems culpable of the misstatements.
For issuers that do not self-report, the SEC cautions that enforcement actions outside of the Initiative could result in the SEC seeking remedies beyond those described in the Initiative, including financial sanctions.
Given that the City has been reported by an underwriter, the City can report as a precautionary measure. By self-reporting to the SEC, the City is not admitting that it did anything materially incorrect or attempted to commit fraud by the minor issues identified.
The City Council’s authorization and approval is necessary in order for the City to self-report. The City Council must also approve the attached policy, prepared by Bond Counsel, as part of the Initiative. The Policy establishes a process to address continuing disclosure obligations.
Since 2005, the City has engaged a third party (the “Reporting Agent”) to track, consolidate and file the City’s continuing disclosure information, including the City’s Comprehensive Annual Financial Report (CAFR) and other miscellaneous operating data.
In connection with the Initiative, the Reporting Agent spent weeks reviewing all official statements and continuing disclosure filings from 2005 through 2013. Following such review, the City’s Finance Department, the Reporting Agent and the City’s Bond Counsel spent two weeks on six different phone calls discussing the Initiative and what the City should do regarding self-reporting.
Tina Volek, Bruce McCandless, Brent Brooks and Pat Weber, in consultation with Bond Counsel, recommend the City self-report for some issues from prior years reporting. A primary factor in the recommendation to self-report is that the underwriter of one of the City’s bond issues has also filed a report with respect to the City. This underwriter reported that the City’s 2005 CAFR had been submitted late. The City shall provide to the SEC that based on the information available to the City and the Reporting Agent, it appears that (i) the City’s CAFR has been filed from one to 18 days late (and in the case of the 2005 CAFR, 90 days late); (ii) supplemental operating data has been filed from one to 18 days late; and (iii) certain operating data has been omitted.
For issuers that self-report, the enforcement division of the SEC will review the information submitted and decide whether to recommend enforcement action against the issuer. If enforcement action is recommended against the issuer, the enforcement division will recommend a settlement in which the issuer consents to a cease and desist proceeding while neither admitting nor denying any wrong doing. Issuers will not be subject to civil penalties, but the settlement terms require certain undertakings. Issuers must (i) adopt policies and procedures to address continuing disclosure obligations, (ii) update past delinquent filings, (iii) cooperate with the enforcement division in subsequent investigations regarding the false statements, (iv) disclose the settlement in any securities offering within the next five years, and (v) provide the SEC with a compliance certification on the one year anniversary of the institution of the proceedings. The SEC reserves the right to pursue separate enforcement actions against individuals who it deems culpable of the misstatements.
For issuers that do not self-report, the SEC cautions that enforcement actions outside of the Initiative could result in the SEC seeking remedies beyond those described in the Initiative, including financial sanctions.
Given that the City has been reported by an underwriter, the City can report as a precautionary measure. By self-reporting to the SEC, the City is not admitting that it did anything materially incorrect or attempted to commit fraud by the minor issues identified.
The City Council’s authorization and approval is necessary in order for the City to self-report. The City Council must also approve the attached policy, prepared by Bond Counsel, as part of the Initiative. The Policy establishes a process to address continuing disclosure obligations.