The new SEC disclosure rule 15c-12: questions and answers.

To assist issuers who are in the process of determining what impact, if any, the changes to Securities and Exchange Commission (SEC) Rule 15c2-12 concerning primary and secondary market disclosure will have on their disclosure practices, the GFOA Federal Liaison Center has developed the following questions and answers concerning the rule's implementation. For a fuller understanding of the "Final Rule," which was approved by the SEC on November 10, 1994, and its impact, GFOA members are urged to consult with their financial advisor or bond counsel. Issuers should also refer to the SEC's "Adopting Release" (Release No. 34-34961), which explains the rule changes, and the GFOA Washington Update on the "New SEC Municipal Securities Disclosure Rule," dated December 9, 1994, which offers a general description of the rule.

The new provisions of Rule 15c2-12 were adopted by the SEC under the antifraud provisions of the federal securities laws, which apply to issuers and other market participants, to prevent the underwriting and recommendation of municipal securities about which little or no information is provided on an ongoing basis. Technically, the rule addresses underwriter requirements and responsibilities in the offering of municipal securities and does not directly regulate municipal securities issuers. However, since the offering of securities by an underwriter is conditioned upon the existence of a binding commitment by the issuer or other parties to provide annual financial information and material events disclosure, issuers should review their disclosure practices so that appropriate disclosure is available on a timely basis.

To complement this effort, the SEC used its interpretive authority and issued Interpretive Release No. 33-7049 and 34-33741 on March 9, 1994, which provides the SEC's views regarding disclosure by municipal market participants in meeting their responsibilities under the antifraud provisions of the federal securities laws. The antifraud provisions in the Securities Act of 1933 and the Securities Exchange Act of 1934 generally prohibit fraudulent and deceptive practices in the offer, purchase and sale of municipal securities. Any person, including municipal issuers, brokers and dealers, who makes any false or misleading statement of material fact or omits any material facts that cause such statements to be misleading in the context in which the statements are made, violates the federal law. The commission has previously warned issuers that any information reasonably expected to reach investors, even if it does not take the normal form of a disclosure document and is not directed specifically at market participants, may be viewed as a statement subject to the antifraud provisions. Information may include documents, public statements and press releases. Penalties for violations of the federal securities laws and rules promulgated thereunder include cease and desist orders, injunctions, monetary damages, and fines and imprisonment, or both.