Continuing Disclosure Filings and MSRB Filing Tools

As many of you know, certain contractual agreements entered into under SEC Rule 15c2-12 (the “Rule”) require ongoing disclosures by municipal securities issuers. These disclosures may include financial information, operational information and event notices disclosing the occurrence of specific events that may have an impact on an issuer’s outstanding bonds. These disclosures are to be provided to the Municipal Securities Rulemaking Board (“MSRB”), and more specifically MSRB’s Electronic Municipal Market Access (“EMMA”) website.

These continuing disclosure requirements can be confusing and in  response to municipal issuers’ requests the MSRB released additional guidance and tools to help issuers file correct and timely disclosures to the EMMA website.

We thought it would be helpful to you and your colleagues to forward the recently released MSRB continuing disclosure guide providing issuers with a road map of their obligations under the Rule.  The guide provides issuers with a detailed breakdown of the steps that should be followed to submit bond documents, annual financial statements and other necessary disclosures to EMMA, as well as cites numerous federal enforcement actions in which issuers sometimes failed to file the required information.

The MSRB also launched a new email reminder tool to help issuers submit timely disclosures to the EMMA website.  The  tool alerts the issuer of approaching due dates for annual or quarterly financial disclosures to EMMA.  Scheduling email reminders on the EMMA website can help ensure timely filing of the issuer’s annual financial information and audited financial statements.  Up to three email addresses can be included to schedule a reminder, which ensures that anyone with a role in preparing and filing financial disclosures is advised of upcoming filing deadlines.  Learn more about the email reminder tool and read the instructions for scheduling and managing email reminders.

Our entire public finance team is available to assist you and answer any questions you may have regarding these applications.  Please call us if you need some assistance.

Recent Actions against Issuers

The MSRB Guide to Disclosures was released in part, due to SEC actions against Harrisburg, Pa. and West Clark Community Schools in Clark County, Indiana as well as charges against the State of Illinois over faulty pension liability disclosure.  In each of these cases, the SEC investigation found that these issuers were not in compliance with the continuing disclosure agreements.

Harrisburg had a major financial liability due to an incinerator financing and the SEC charged the city for failing to stay current on its continuing disclosure documents, while simultaneously telling the market misleading information in speeches and other materials. The Clark Community School District in Indiana, and its underwriter, were charged with falsely claiming the issuer was complying with continuing disclosure obligations.

The SEC action against the State of Illinois was in part due to the State’s failures to properly “disclose that its statutory plan significantly underfunded the state’s pension obligations.”  According to a March 13th Wall Street Journal editorial, “it’s now official: The Land of Lincoln has the nation’s most reckless and dishonest state government when it comes to pension liabilities”; the state’s “accounting practices would get private market participants thrown in jail.”

Departing SEC commissioner and former chairman, Elise Walter, who was a strong advocate for increased municipal transparency, said issuers and transaction participants should now understand that the SEC is serious about muni enforcement.  “We’ve come a very long way in the last five years from people who asked me for safe harbors from anti-fraud provisions, so that there were things that people could say and never be subject to fraud for it, which I found astounding as a request,” she said.  There has been a growing “understanding that this is a securities market and it is subject to securities market rules.”

Future Enforcement

Walter recently stated that the bottom line is municipal market participants who rely on continuing disclosure data get cheated if municipal issuers are not living up to their disclosure agreements.  “There are a lot of people out there who are not following through on what they are contracted to do,” she said.  The important part of that is what underlies it, which means issuers should be not allowed to avoid disclosing current information and then, when they are preparing to do another bond deal, say, “Oh, whoops! I’ll bring it up to date!”  “You should not be able to engage in that kind of behavior and it’s not right that investors in those municipal bonds have no current information,” Ms. Walters said.

As Walter departs the commission, there remain challenges on various regulatory levels.  Walter said she has no regrets, but wishes she could have achieved more, especially the legislation called for by a muni market report, which was prepared by the SEC last year and supported by all of its commissioners.  One recommendation in the report was for Congress to give the SEC the authority to dictate the timing and content of issuer’s secondary market disclosures.  While that legislation has not passed, there is traction for additional legislation on the federal level which will make it more difficult and/or costly for municipal issuers to come to market with a new bond issuance if they have not been timely on prior continuing disclosure requirements.


Even though the SEC has no jurisdiction over bankruptcy proceedings, they have stated that they are keeping an eye on the City of Detroit and its bankruptcy filing.  The City’s emergency manager, Kevyn Orr, is attempting to treat general obligation bondholders as holders of unsecured debt and offering them pennies on the dollar for their investments.  SEC muni chief John Cross has stated that Detroit’s situation in part illustrates the magnitude of pension liability disclosure issues, which is something the SEC will continue to monitor from an enforcement standpoint.

“If you look at the Detroit bankruptcy that just occurred, something like $3.5 billion in direct pension liabilities and another $6.5 billion in health care post-employment liabilities,” Cross said.  “Almost half of their total $19 billion in exposure is related to those topics.  That’s not to say that’s what Detroit’s problem is, but it is illustrative of the magnitude of that issue, potentially.”

Walter said the Detroit issue could represent a wider disclosure problem if investors in general obligation bonds believe the pledge behind those bonds is much stronger than secured revenue backed bonds and issuers that don’t follow through with their commitments when they are under fiscal stress. “There can very well be disclosure implications among other things depending on what happens there, because people need to know what they’re buying,” she said.

For additional information regarding Continuing Disclosures and issuer’s responsibilities as well as a list of these disclosures and material event notices, please click here.

There are continual changes in municipal disclosure legislation and requirements. We will continue to lead in this area and as changes occur, we will do our best to keep you apprised.    Please feel free to contact me or any other public finance banker of our firm with any questions.

Thank you for your continued confidence.


Robert Vail

Vice President & Director of Public Finance

Bernardi Securities, Inc.

September 9, 2013