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Crafting Disclosure Policies

National Association of Bond Lawyers Releases “Crafting Disclosure Policies” Paper (August 20, 2015).

On August 20, 2015, the National Association of Bond Lawyers (“NABL”) released a white paper titled “Crafting Disclosure Policies” providing advice to issuers of municipal securities on preparing and complying with written disclosure policies. In the aftermath of the Securities and Exchange Commission’s (the “SEC”) Municipalities Continuing Disclosure Cooperation initiative and in an era of increasing Internal Revenue Service audit examinations, disclosure practices and post-issuance compliance are under heightened scrutiny.

As early advocates for the implementation of policies and procedures with respect to post-issuance compliance and disclosure obligations, we concur with many of the general and specific points of NABL’s recommendations. Two notes in particular deserve discussion as they provide new areas of consideration for the evolution of disclosure practices and policies. First, NABL suggests that an issuer should have written policies that govern its information disclosure practices, including setting out procedures for assembling, reviewing and confirming information to be included in any offering documents. The purpose of such procedures is to decrease the likelihood that a material misstatement or omission of a material fact is made. This goes beyond the policies that many issuers currently employ, which typically do not put into place a procedural framework for assembling, vetting and then signing off on the accuracy of information that is either (a) included in an offering document or (b) released to the general public or bondholders.

The SEC’s recent aggressive enforcement actions against issuers for statements made “in connection with the purchase or sale of securities” included actions for statements, such as public remarks and speeches, that were not even addressed specifically to bondholders but where a reasonable basis was found for the assumption that such comments reached them. These situations have led to NABL’s suggestion that increased attention to policies on how information is prepared and verified prior to inclusion in an offering document or release to the public in some capacity is necessary.

At first glance, this suggestion appears to be merely another in an increasing list of regulatory burdens to which municipal employees are subject. However, NABL correctly points out that based on the age of information in which we live and work, this issue does and will continue to arise in more frequency as the amount of information (financial, statistical, or otherwise) released to the general public increases and as disclosure requirements continue to evolve and require additional transparency.

The second point highlighted by NABL is the necessity (often overlooked in many of the policies that we have reviewed) of ensuring relevant personnel have adequate training to interpret and carry out the ends of an issuer’s written disclosure policy. This point is of specific interest from NABL’s perspective because the importance of adequate and consistent training was a recurring and consistent theme of the SEC’s settlement orders against municipal issuers and/or officials for material statements or omissions. The municipal securities industry has yet to fully digest and apply the cautionary tales set forth in the recent enforcement actions. However, NABL is at least one observer that is concerned that the SEC’s consistent commentary on the lack of training provided to officials and staff on the subject of disclosure practices is an advance signal that municipal issuers and the industry as a whole should take this area more seriously.

Determining whether a current tax-exempt debt policy should be amended and modified to apply to disclosures more broadly is a complex issue that requires individual consideration and advice. While we agree generally with NABL’s recommendations, the specifics of how to implement such guidelines will depend upon the size, sophistication and organization of each individual issuer. Please contact us with any questions or concerns you might have on these matters and we will be happy to assist you.

In addition, we plan to provide concise and informative teleconference or in-person training presentations that address these points at regular intervals during the year. If you have any interest in attending, please contact us for more information.


Credit: Garrett Churchill