## Facts

- West Clark Community Schools, an Indiana public school district and municipal bond issuer, conducted a $52 million municipal bond offering in March 2005.
- In connection with the 2005 offering, the district entered into a continuing disclosure agreement under Exchange Act Rule 15c2-12, undertaking to provide annual financial and operating information and required event notices, including notice if annual filings were not made on time.
- From at least 2005 through 2010, the district did not submit any of the contractually required continuing disclosures and did not submit failure-to-file notices.
- In December 2007, the district conducted a second municipal bond offering of approximately $31 million.
- The 2007 official statement represented that, in the prior five years, the district had not failed in any material respect to comply with prior continuing-disclosure undertakings.
- The district also executed a certificate/affidavit attesting that the offering document contained no untrue statement of material fact.
- The SEC instituted a settled administrative cease-and-desist proceeding; the district consented to the order without admitting or denying the findings (except jurisdiction).

## Issues

1. Whether stating in municipal bond offering documents that the issuer had not materially failed to comply with prior continuing-disclosure undertakings was materially false or misleading when the issuer had made no required filings for multiple years.
2. Whether those statements violated Securities Act § 17(a)(2) (material misstatements or omissions in the offer or sale of securities).
3. Whether those statements violated Exchange Act § 10(b) and Rule 10b-5(b) (material misstatements or omissions in connection with the purchase or sale of securities).

## Decision

- The SEC found that the district’s statements in the 2007 offering materials regarding prior compliance with continuing-disclosure undertakings were materially false.
- The SEC found violations of Securities Act § 17(a)(2) and Exchange Act § 10(b) and Rule 10b-5(b).
- The SEC ordered the district to cease and desist from committing or causing future violations of those provisions.
- The order imposed cease-and-desist relief and did not impose a civil monetary penalty on the district.

## Legal Principles

- An issuer’s representations in offering documents about compliance with prior continuing-disclosure undertakings can be material to investors and must be accurate.
- An issuer that offers or sells securities using offering materials containing an untrue statement of material fact may violate Securities Act § 17(a)(2).
- Making an untrue statement of material fact in connection with the purchase or sale of securities may violate Exchange Act § 10(b) and Rule 10b-5(b).
- In an SEC administrative settlement, the operative “holding” is expressed through the Commission’s findings and the remedial cease-and-desist order, even where the respondent neither admits nor denies the findings (aside from jurisdiction).

## Conclusion

The SEC concluded that a municipal issuer committed securities fraud by falsely asserting in a bond offering that it had not materially failed to comply with prior continuing-disclosure obligations, and it ordered the issuer to cease and desist from future violations of Securities Act § 17(a)(2) and Exchange Act § 10(b) and Rule 10b-5(b).


In re West Clark Cmty. Schs., Securities Act Release No. 9435, Exchange Act Release No. 70057, 2013 WL 12309911 (S.E.C. July 29, 2013)