As efforts to clean up municipal bond offerings ramp up, underwriting firms are cooperating to ease the sting of aggressive regulators.

The U.S. Securities and Exchange Commission announced more than $9 million in penalties against 36 municipal bond underwriting firms last week for material misstatements and omissions in municipal bond offering documents. Collectively, the companies underwrote more than 70 percent of the total municipal bond offerings over the past four years.

The cases are the first brought under the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative, a voluntary self-reporting program targeting violations in the bond offerings that was launched in March 2014.

The program offers favorable settlement terms to underwriters and issuers who self-reported violations.

“The MCDC initiative has already resulted in significant improvements to the municipal securities market, including heightened awareness of issuers’ disclosure obligations and enhanced disclosure policies and procedures,” said SEC Chair Mary Jo White in a statement.  “This ongoing enforcement initiative will continue to bring lasting changes to the municipal securities markets for the benefit of investors.”

The SEC alleges that between 2010 and 2014 the firms violated federal securities laws by selling municipal bonds using offering documents that contained materially false statements or omissions about the bond issuers’ compliance with continuing disclosure obligations.

The underwriting firms also allegedly failed to conduct adequate due diligence to identify the misstatements and omissions before offering and selling the bonds to their customers. 

The SEC’s 2012 Municipal Market Report identified issuers’ failure to comply with their continuing disclosure obligations, which require firms to provide bond investors with information, including financial reports, on an ongoing basis, as a major challenge for investors seeking information about their municipal bond holdings.

The 36 firms, which did not admit or deny the findings, agreed to cease and desist from such violations in the future.  Under the terms of the MCDC initiative, they will pay civil penalties based on the number and size of the fraudulent offerings identified, up to a cap based on the size of the firm.  The maximum penalty imposed is $500,000. 

The firms and penalties are: