The SEC crackdown on municipal continuing disclosure, once described by an issuer as a monumental waste of resources, has gone to the enforcement phase with two MCDC settlements so far this year. For the many muni borrowers who spent time and money self-reporting under the MCDC initiative, the two enforcement actions to date may be disappointing.

Launched in 2014, the Municipalities Continuing Disclosure Cooperation or “MCDC” initiative offered municipal issuers and bond underwriters leniency in exchange for voluntarily reporting instances in the previous five years where continuing disclosure requirements were not met and these failures were not reported in offering statements as required by federal securities laws.

Underwriters who self-reported agreed to $18 million in fines. The SEC reported settlements with 71 municipal issuers who self-reported, including 4 hospitals.

In December 2016, the SEC announced it was done with those who voluntarily self-reported, and is now going after those who didn’t.

So far, the SEC has settled two cases, which may seem relatively minor for a program that required thousands of municipal issuers, obligors and their underwriters to take a fine comb through years of continuing disclosure.

The first case, settled in April, involves Lawson Financial Corporation and its counsel who underwrote 13 unrated bond issues to buy and renovate distressed nursing homes. The SEC alleges that Christopher Brogdon, the obligor, failed to abide by the terms of various continuing disclosure agreements, and Lawson, the underwriter, failed to flag the violation as well as exercise general due diligence. The underwriter and its principal were fined $200,000 and another $280,000 in civil penalty, and the principal was barred from the industry for three years. Brogdon was charged separately for fraud.

The second case, settled earlier this month, involves Beaumont Financing Authority, an obscure California municipal issuer under financial duress for the last several years, and its underwriter O’Connor & Company Securities. According to the SEC, the issuer did not self-report under the MCDC initiative that it was late in filing certain annual reports, and that it failed to provide certain financial information it had added to its continuing disclosure agreement at the request of a “large institutional investor”. The underwriter was barred from the business for 6 months and fined $150,000, of which the MSRB gets the princely amount of $23,863. The underwriter’s principal was fined an additional $15,000, which will not be forwarded to the MSRB. The Authority was not fined but the former City Manager, who was charged in 2016 with embezzlement and misappropriation of public funds, agreed to pay $37,500 and be barred from future municipal bond offerings.

In both cases, the parties did not self-report and it appears the SEC became aware of the violations in the course of unrelated investigations.

The jury is still out on what MCDC has accomplished.

On one hand, if these two cases are the juiciest the SEC can come up with, one may question the amount of industry resources that were poured into MCDC in the first place. On the other hand, if the majority of failures to disclose were self-reported, the initiative may have accomplished its goal of assessing the state of compliance across the muni sector and increasing awareness of the importance of disclosure in the markets, and future enforcement cases may be few.