Higher Education Report

Higher Education Report

MIT 2014 Community Attitudes on Sexual Assault

Posted in Higher Education, Sexual Assault, Student Affairs

In the Spring of 2014, MIT launched a survey of all of its undergraduate and graduate students (just under 11,000), related to issues of student sexual assault.  More than 3,800 undergraduate and graduate students responded, or about 35% of the institution’s total student population.  (This 35% consisted of 46% of surveyed undergraduate females, 35% of undergraduate males, 37% of graduate females and 30% of graduate males.)  As noted by MIT Chancellor  Barnhart last week in the release of the survey results, “[b]ecause the survey was not a random sample and was voluntary, and the topic of unwanted sexual behaviors is focused, we know the results reflect a degree of self-selection. Since it is impossible to tell how this may have altered the results, it would be a mistake to use these numbers to generalize about the prevalence of unwanted sexual behavior in the lives of all MIT students.”  Nonetheless, she noted, the survey “clearly tells us that, like many other colleges and universities, we face a serious problem.”

While the full results of the survey are available online, some of the many interesting survey results are noted below:

  • 14% of undergraduate females indicated that they had experienced stalking, being followed and/or receiving repeated unwanted messages/texts/emails that made them uncomfortable (2% of undergraduate males reported similar experiences);
  • 10% of undergraduate females reported experiencing a sexual assault and 5% reported having been raped (undergraduate male responses were 2% and 1% respectively);
  • 72% of all respondents indicated that another MIT student was responsible for the unwanted sexual behavior (which was not limited to sexual assault or rape) they experienced.  For 98% of the females, the perpetrator was a male; for male respondents the perpetrators were males in 35% of the instances and females in 67%.
  • 40% of female and male undergraduate respondents indicated that the perpetrator was a friend;
  • While 63% of those experiencing an unwanted sexual experience reported it to someone (90% to a friend, 19% to family, 13% to medical personnel), only 5% reported the experience to someone in an official capacity;
  • Respondents who indicated that they had experienced unwanted sexual behavior were asked of any thoughts or concerns that came to mind in deciding whether to share their experiences.  Of those responding:
    • 72% did not think the incident was serious enough to officially report
    • 55% indicated that it was not clear that harm was intended
    • 47% did not want any action to be taken
    • 44% felt that they were at least partly at fault or it wasn’t totally the other person’s fault (results from another portion of the survey indicated that 20% of female undergraduate respondents and 25% of male undergraduate respondents “agreed” or “strongly agreed” with the statement: “When someone is raped or sexually assaulted, it’s often because the way they said ‘no’ was unclear or there was some miscommunication.”);
  • 53% of respondents (with the same percentage for both females and males) “agreed” or “strongly agreed” that “Rape and sexual assault can happen unintentionally, especially if alcohol is involved.”
  • 73% of female respondents and 76% of male respondents “agreed” or “strongly agreed” that they feel confident in their ability to judge if a person is too intoxicated to consent;
  • With respect to bystander activity, 91% of females and 89% of males “agreed” or “strongly agreed” that their friends would watch out for them if it seemed like something bad might happen to them and that more than 9 out of 10 respondents  “agreed” or “strongly agreed” that most MIT students would respect someone who did something to prevent a sexual assault.  Yet 56% of respondents who knew a perpetrator did not confront that person about their behaviors or take any action, and 50% of females and 59% of males “do not usually try to distract someone who is trying to take a drunk person to do something sexual.”

As noted, the voluntary nature of the survey and its narrow focus make it hard to know why students self-selected in or out of the survey and whether it was in a way that might bias the results.  Nonetheless, the University noted that while that does mean that the rates based on those who responded cannot be extrapolated to the MIT population as a whole and cannot be validly compared to results from other surveys, it does not make the results any less accurate.  Nor does it make those results any less important.

In the coming 12-18 months, either as a result of the federal government’s “encouragement” that institutions undertake surveys or pending legislation that might require them (e.g., Senator McCaskill’s Campus Accountability and Safety Act we undoubtedly will see many more colleges and universities engage in similar efforts in as they attempt to better understand the dynamics on their campuses, and how they can better address this issue.

What Concerns College and University Human Resources Officers?

Posted in Higher Education, Human Resources

A few weeks ago, Inside Higher Ed issued its 2014 Survey of College and University Human Resources Officers.  Like Inside Higher Ed’s other surveys, this one provides very interesting reading.

Among the topics covered in this survey of 330 responding institutions are several questions pertaining to adjunct employment.  Given the continued union organizing efforts among adjuncts, these questions are particularly timely.  Only 20% of all respondents “strongly agreed” that their institutions fairly compensated adjuncts, down from 24% in 2013.  (The full survey provides a further breakdown of all survey results by whether the responding institutions are public/private and by degrees awarded.)  Only 19% “strongly agreed” that an appropriate benefits package was provided to adjuncts.  (For example, only 27% of respondents indicated that their institutions provide health insurance benefits for adjuncts.)  An even lower number, 15%, “strongly agreed” that their institution provides appropriate job security and due process protections for adjuncts.  Yet, perhaps surprisingly given these results, only 4% “strongly agreed” (with another 8 percent “agreeing”) that unions help adjuncts secure better wages, benefits and working conditions (73% “disagreed” or “strongly disagreed” that unions help).

The Survey also focused on retirement concerns.  Sixty-four percent of respondents were “very concerned” or “moderately concerned” about faculty working past retirement age, with 54% concerned that their institutions lacked sufficient retirement incentives for eligible faculty (only 18% “strongly agreed” that their institutions offered sufficient phased retirement options for faculty).  Not surprisingly, 67% were “very concerned” or “moderately concerned” about health care costs for retirees.

Some of the benefits information was also very interesting.  While 64% of institutions reported allowing telecommuting, that number was based on 87% of responding public institutions allowing it, and only 41% of private institutions.  As to be expected, 93% of all responding institutions provide financial support for employee enrollment in higher education courses, but only 81% provide it for children of employees (69% of public institutions and 95% of private institutions).  Health care coverage for opposite sex domestic partners is only provided by 58% of the responding institutions, with 55% of institutions providing other benefits to same sex domestic partners.  Thirty-three percent of respondents (47% of public institutions and 18% of private institutions) provide onsite child care for employees.

With respect to criminal background checks, 81% of all institutions (83% public, 79% private) reported conducting these checks as part of the faculty hiring process.  A slightly higher amount, 89%, reported doing criminal background checks on staff.

Other topics covered by the Survey include sexual harassment efforts and non-discrimination policies, hiring and training practices, and social media policies.

The Survey is well worth a close review.

Court Rules Against Georgia State University in E-Reserves Case

Posted in Higher Education

Copyright claims

The United States Court of Appeals for the Eleventh Circuit issued a long-awaited decision in the Georgia State e-reserves copyright case on October 17, 2014. The Court of Appeals reversed and remanded to the District Court for reconsideration in light of its opinion rejecting that court’s formulaic fair use analysis.

In 2008, three publishers (Cambridge University Press, Oxford University Press, and Sage Publications) filed suit in the Northern District of Georgia, alleging that Georgia State University’s e-reserves system – through which students could access electronic content posted by faculty – infringed copyrights held by the publishers.

In 2012, the District Court issued an order finding that the university had infringed the publisher’s copyrights in several instances, but that the fair use defense applied to the majority of the alleged infringements. The court applied the four factors of a fair use defense: (1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion taken; and (4) the effect of the use upon the potential market. The court granted declaratory and injunctive relief to the publishers, but ultimately found that the University was the prevailing party and awarded costs and attorneys’ fees.  Continue Reading

Update on Ebola For Colleges and Universities

Posted in Higher Education

Back in September, we reported that the Center for Disease Control (CDC) had issued guidance to colleges and universities on how to respond to the spread of Ebola in West Africa.  The guidance included suggested precautions with respect to (a) study abroad programs, research and other education-related travel to the region, and (b) individuals arriving on campus from the region or otherwise known to have been exposed to Ebola. Given the ongoing concerns and availability of more guidance and information relating to Ebola, we are offering this update with our own recommendations to ensure that you have current information and consider the aspects of this health concern from the perspective of a college or university.

According to the CDC, a person infected with Ebola is not contagious until symptoms appear. Symptoms may appear anywhere from 2 to 21 days after exposure to Ebola but the average is 8 to 10 days. The signs and symptoms of Ebola typically include:

• Fever (greater than 38.6°C or 101.5°F)
• Severe headache
• Muscle pain
• Vomiting
• Diarrhea
• Stomach pain
• Unexplained bleeding or bruising

Diagnosing Ebola in a person who has been infected for only a few days is difficult because the early symptoms, such as fever, are not specific to Ebola infection. However, if a person has symptoms of Ebola and had contact with blood or body fluids of a person sick with Ebola, contact with objects that have been contaminated with blood or body fluids of a person sick with Ebola or contact with infected animals, the individual should be isolated and public health professionals notified. Samples from the individual can then be collected and tested to confirm infection.

The CDC’s recommendations for student health centers in responding to potential Ebola exposure and managing individuals presenting with symptoms consistent with Ebola disease are the same as those for other US health care workers and settings.

As a planning step, colleges and universities should review and consider utilizing the American College Health Association Emergency Preparedness Planning Considerations for College Health Centers Regarding Ebola Virus Disease:

1. Is your campus emergency response plan up to date so it can be activated if needed to respond to a case of Ebola on campus or in the local community? Is it coordinated with the local public health department on a community response to a case of Ebola?  

2. Does your campus have a communications plan and team in place to respond to the communications need if a case were to emerge on campus, in the community, or at another institution? Is the communications plan coordinated with the local community so that your campus would be informed if a case emerges in the community, allowing communication to students and parents?  

3. If the public health department orders a quarantine for a high risk exposure, does the campus have a location and plan to provide food and clothing to a quarantined person? Does the campus have a mechanism (qualified contractor) in place to dispose of waste?

 4. Is the student health center screening all patients for travel in the past 21 days? Are there plans in place to quickly respond to an ill student with a travel history from an Ebola affected area? What about other emerging pathogens?

 5. Is there a mechanism to identify and contact students, faculty, and staff who are returning to campus from an Ebola affected area and refer appropriately to the public health department for monitoring?

 6. Who is responsible for monitoring individual and group institutional travelers? Is there a policy and/or mechanism in place to restrict travel based on the CDC travel warning?

In keeping with these recommended planning steps, institutions should consider the following actions:

  • Ensure that student health center staff are aware of exposure risks, signs and symptoms      of Ebola and are prepared to follow recommendations in the CDC Health Advisory: Guidelines for Evaluation of US Patients Suspected of Having Ebola Virus Disease.
  • Consider providing information to the campus community with recommendations for people who have recently arrived from countries where Ebola outbreaks are occurring  and provide specific Ebola education to all people who have recently arrived from countries where outbreaks are occurring in accordance with the screening procedures.
  • Continue to monitor the countries of concern in terms of Ebola outbreak. Here are the current CDC travel notices related to Ebola      even if travelers do not plan to be in contact with people infected with the virus:

WarningAvoid nonessential travel: Ebola in Liberia, Guinea and Sierra Leone
AlertPractice enhanced precautions: Ebola in Democratic Republic of the Congo
WatchPractice usual precautions: Ebola in Nigeria

  • Based on current travel notices consider making adjustments to programs for the current semester and upcoming spring semester which would involve travel by students and faculty to these regions.
  • Identify students, faculty, and staff who have been in countries where Ebola  outbreaks are occurring within the past 21 days and conduct a risk      assessment with each identified person to determine his or her level of risk exposure (high- or low-risk exposures, or no known exposure). Consult      the CDC’s algorithm for evaluation of a returned traveler:

The following steps are consistent with current CDC guidance:

  • If the student, faculty, or  staff member has had NO symptoms of Ebola for 21 days since leaving a West African country with Ebola outbreaks, they do NOT have Ebola. No further assessment is needed.
  • If the student, faculty, or staff member has had a high or low-risk exposure, state or local public health authorities should be notified, and school officials should consult with public health authorities for guidance about how that person should be monitored. Anyone with a potential exposure should receive thorough education about immediately reporting symptoms and staying away from other people if symptoms develop.
  • In the event that a student, faculty, or staff member who has had a high or low-risk exposure develops symptoms consistent with Ebola, the person should be medically evaluated while following recommended infection control precautions. Guidance is available in the CDC Ebola Virus Disease Information for Clinicians in U.S. Healthcare Settings. Public health authorities should be notified.
  • If the student, faculty, or staff member displays no symptoms and presents no known exposure risk, institutions are advised to instruct the individual to self-monitor through temperature and symptom reporting until the end of the 21 day period, and to report immediately if symptoms appear.

Note that the CDC is still not recommending that colleges and universities quarantine individuals based solely on travel history. The system presently relies on individuals, including college students, to self-monitor for the onset of symptoms and to take immediate steps to self-report. This raises the questions as to whether the self-monitoring/reporting system is reliable enough or whether other steps should be considered to protect the campus community. Reasonable minds may differ as to whether all return travelers are reliable enough to self-monitor without some other level of mandatory oversight. One option, for example, may be for the Campus Health Center to actively participate in the monitoring of individuals to ensure accurate assessments and timely reporting and action if the individual develops symptoms.

  • In the event that a potential case is  identified, isolate the individual pending diagnostic testing.
  • Although not a full list of precautions, student health center clinicians should be sure to follow these steps when caring for someone who is sick or may be sick with Ebola:
  • Separate the sick individual in a private room with its own bathroom.
  • Use proper infection prevention and control measures; standard, contact, and droplet precautions are recommended if Ebola is suspected.
  • Wear the right personal protective equipment (PPE), including masks, gloves, gowns, facemask and eye protection, when entering the patient care area. Before leaving the patient area, carefully remove PPE and make sure not to contaminate skin and clothing. Dispose of PPE as biohazard waste.
  • After removing PPE, wash hands using soap and water (preferred) or an alcohol-based hand sanitizer containing at least 60% alcohol. Use soap and water when hands are visibly dirty.
  • Notify local or state health department immediately if Ebola is suspected. The health department can provide additional guidance regarding medical evaluation or testing, if indicated.
  • Follow protocols for  cleaning and disinfecting reusable medical equipment and proper disposal of needles and other disposable equipment.

Bond Attorneys Author Article on O’Bannon Case

Posted in Antitrust, College Athletics, NCAA, Student-Athletes

Bond attorneys Mike Glazier and Paul Avery authored an article discussing the United States District Court for the Northern District of California’s decision in O’Bannon v. NCAA which was published on October 6, 2014 as a NACUANOTE by the National Association of College and University Attorneys.  The article, entitled O’Bannon v. NCAA: The District Court Decision, can be viewed here.

“Accountability, Transparency, and Integrity” — NACAC Amends Statement of Principles and Issues Guide for Use of International Student Recruitment Agencies

Posted in Admissions, International Students

Last September, during its 2013 National Conference, the National Association for College Admission Counseling (NACAC) approved a change to its Statement of Principles of Good Practice that would allow member colleges and universities to use commissioned agents to recruit students outside the United States.   As amended, the Statement admonished institutions using commissioned agents to “ensure accountability, transparency, and integrity” in their relationships.

The amendments were set to become effective after a one-year moratorium during which NACAC was to determine their potential implications.  Over the last year, NACAC’s Admission Practices Committee and International Initiatives Advisory Committee produced a number of proposals for clarifying the concepts of “accountability, transparency, and integrity” for NACAC members.  During its National Conference in September, NACAC adopted additional changes via further amendments to the Statement. The amendments were published in NACAC’s 2014 Statement on October 4, 2014.

Through these amendments, NACAC clarified the meaning of accountability by requiring member institutions to monitor, affirmatively, the conduct of commission-based agents acting on their behalf.  To ensure transparency, the amended Statement instructs members to use a “conspicuous statement on their website that indicates their institution uses agents who are compensated on a per capita basis.”  Finally, to ensure integrity, the amended Statement instructs members to deal “ethically and impartially with applicants and other stakeholders honoring commitments and acting in a manner that respects the trust and confidence placed in the institutions and the individuals representing them.”

The amendments to the Statement of Principles are, of necessity, written at a high level.  To provide additional detail, on September 16, 2014, NACAC issued International Student Recruitment Agencies: A Guide for Schools, Colleges and Universities.  In addition to reiterating the concepts of accountability, transparency and integrity embodied in the amended Statement, the Guide provides a number of suggested best practices for contracting with commission-based recruiting agents.  These include:

●          Screening for conflicts of interest involving agents having relationships with institutional personnel

●          Requiring use of an institutional template agreement for agency relationships (the Guide contains an extensive list of recommended provisions for such agreements), rather than agents’ template contracts

●          Prohibiting agents from “double dipping” by charging students and/or parents in addition to receiving commissions from the institution, and requiring agents to disclose institutional compensation arrangements to students and parents

●          Posting information about agency relationships on institutional websites

●          Developing an “agency manual” establishing an institution’s requirements for its agents, and offering training for agency staff on those requirements

●          Continuously evaluating the campus impact of the use of commissioned agents

CDC Issues Guidance for Colleges and Universities about Ebola Outbreaks

Posted in Higher Education

The Center for Disease Control (CDC) has issued guidance to colleges and universities on how to respond to the spread of Ebola in West Africa.  The guidance includes suggested precautions with respect to (a) study abroad programs, research and other education-related travel to the region, and (b) individuals arriving on campus from the region or otherwise known to have been exposed to Ebola.

Recommendations on Education-Related Travel to Countries Where the Ebola Outbreaks are Occurring

The CDC has issued a Warning-Level 3 Travel Notice for Guinea, Liberia and Sierra Leone, and an Alert-Level 2 Travel Notice for Nigeria. The CDC recommends that all non-essential travel to Guinea, Liberia and Sierra Leone be avoided, and advises that education-related travel to these countries by students and/or faculty be postponed until further notice.  The CDC has not yet advised against travel to Nigeria, but recommends that travelers to Nigeria use enhanced precautions to prevent the spread of the Ebola virus.  In addition, the CDC cautions that if conditions worsen in Nigeria, it may additionally recommend against non-essential travel to Nigeria, and advises that institutions consider this possibility when deciding whether to proceed with education-related travel plans in Nigeria.

These recommendations extend to all travelers, even if travelers do not plan to be in contact with people infected with the virus.  The CDC advises that there is currently no known risk of contracting Ebola in other countries in the West Africa region where Ebola cases have not been reported, but cautions that circumstances could change rapidly and advises institutions to continue to monitor the situation.

Recommendations with Respect to Students and Faculty Arriving to Campus from Countries where the Ebola Outbreaks are Occurring or Otherwise Known to Have Been Exposed to the Virus

The CDC is not recommending that institutions quarantine individuals based solely on travel history.  Rather, the CDC recommends that institutions conduct a symptom and risk exposure screening for all individuals (including students and faculty) who have traveled to countries where the Ebola outbreak is occurring, or who have had contact with an infected person, within the last 21 days.  In the event that symptom screening is positive or if a student or faculty member has had any high or low risk exposure, the institution is advised to notify state or local health authorities for instructions regarding medical monitoring, lab testing, and control measures such as patient quarantines or isolation.

If an individual displays no symptoms and presents no known exposure risk, institutions are advised to instruct the individual to self-monitor through temperature and symptom reporting until the end of the 21 day period, and to report immediately if symptoms appear.

Additional Guidance and Recommendations

The CDC’s advice includes additional information as to how Ebola is, and is not, transmitted, and guidance as to corresponding cautionary measures for persons on campus.

NCAA to Appeal O’Bannon Decision

Posted in Antitrust, College Athletics, NCAA, Student-Athletes

Lcourthouse_24289004ast Thursday, the NCAA announced that it had filed a notice of appeal of Judge Claudia Wilken’s August 8, 2014 decision in O’Bannon v. National Collegiate Athletic Association et al.  The appeal was widely anticipated as the decision has been broadly viewed as a major setback for the NCAA.  Although this is certainly true insofar as the court concluded that current NCAA rules represent a violation of federal antitrust law, the decision actually somewhat measured and contained some content beneficial to the NCAA, including (a) an acknowledgement of the NCAA’s interest in limiting payments to student-athletes while enrolled in order to promote the educational goal of integrating student-athletes into their respective campus communities, (b) an acknowledgement that limiting payments to student-athletes might help the NCAA maintain viewer interest in, and demand for, broadcasts of intercollegiate athletic contests, (c) an acknowledgement that permitting student-athletes to endorse commercial products would undermine the NCAA’s goal of preventing commercial exploitation of student-athletes, and (d) authorization for the NCAA to cap the amount of compensation paid by institutions to student-athletes for use of their likenesses.  These aspects of the O’Bannon decision could be helpful to the NCAA, among other things in the context of Jenkins et al. v. National Collegiate Athletic Association et al. (the so-called Kessler litigation), in which the plaintiffs are expected to argue that the NCAA cannot limit student-athlete compensation at the cost of attendance.  As a result, the NCAA’s decision to appeal is, on some level, interesting from a strategic standpoint.

In announcing its appeal, the NCAA made specific reference to a passage in Judge Wilken’s decision suggesting that reform of NCAA principles governing student-athlete compensation would be best achieved outside the courtroom.  It is possible that discussion of such reforms may occur against the backdrop of the NCAA’s appeal and in advance of the decision becoming effective for the 2015-2016 academic year, though the pendency of Jenkins and other litigation will necessarily pose challenges in this regard.

Court Rules Against NCAA in O’Bannon Case

Posted in Antitrust, College Athletics, NCAA, Student-Athletes

The United States District Court for the Northern District of California issued its highly anticipated decision in the Ed O’Bannon case on August 8, 2014.  The Court ruled in favor of the plaintiffs, a class consisting of current and former college student-athletes who filed suit in 2009, concluding that the NCAA’s rules which prohibit payment to student-athletes are an unreasonable restraint on trade, and thus violate federal antitrust law.  In so finding, the Court issued injunctions prohibiting the NCAA from enforcing certain of its rules:

 …the Court will enjoin the NCAA from enforcing any rules or bylaws that would prohibit its member schools and conferences from offering their FBS football or Division I basketball recruits a limited share of the revenues generated from the use of their names, images, and likenesses in addition to a full grant-in-aid. The injunction will not preclude the NCAA from implementing rules capping the amount of compensation that may be paid to student-athletes while they are enrolled in school; however, the NCAA will not be permitted to set this cap below the cost of attendance…

 The injunction will also prohibit the NCAA from enforcing any rules to prevent its member schools and conferences from offering to deposit a limited share of licensing revenue in trust for their FBS football and Division I basketball recruits, payable when they leave school or their eligibility expires. Although the injunction will permit the NCAA to set a cap on the amount of money that may be held in trust, it will prohibit the NCAA from setting a cap of less than five thousand dollars (in 2014 dollars) for every year that the student-athlete remains academically eligible to compete.

Notably, the injunction does not preclude the NCAA from continuing to enforce its other existing rules, including those prohibiting student-athletes from endorsing commercial products.

The Court’s decision, which came one day after the NCAA voted to afford schools in its major conferences additional autonomy to, among other things, increase the value of scholarships, will not affect prospective student-athletes who enroll prior to July 1, 2016.  Yesterday, the NCAA filed a request with the Court seeking clarification regarding the effective date.  The NCAA has announced that it will appeal the decision.

Among the multitude of questions raised by this decision are (1) the likelihood and prospects of future antitrust challenges against the NCAA’s other amateurism based rules, (2) how the potential compensation of student-athletes will impact recruiting and competitive balance in college athletics, (3) how any significant compensation of student-athletes will impact athletic department and non-revenue generating sports’ budgets and, potentially, threaten the continued existence of non-revenue generating sports, and (4) the Title IX and other regulatory impact of any resulting changes in athletic department offerings.  Only time will tell how these and others specific questions stemming from this decision will be answered, but at this point it is clear that the game has changed for the NCAA and its longstanding principles of amateurism.

Deadlines Applicable to Colleges and Universities Approaching for Participation in SEC’s Continuing Disclosure Cooperation Initiative

Posted in Securities and Exchange Commission

OVERVIEW

On March 10, 2014, the Securities and Exchange Commission (“SEC”) announced a voluntary self-reporting program for issuers and underwriters of municipal bonds for reporting of inaccurate statements made in offering documents regarding prior continuing disclosure compliance through a program called the Municipalities Continuing Disclosure Cooperation Initiative (the “MCDC initiative”).

The MCDC initiative permits issuers and obligated persons, for a limited time only, to self-report misstatements concerning prior compliance with continuing disclosure obligations in an official statement for a municipal bond issue.  In exchange, the SEC Division of Enforcement agrees to recommend favorable settlement terms for issuers and obligated persons involved in the offering of those municipal bonds. The Division of Enforcement has warned that it will likely recommend seeking significant financial sanctions against issuers and obligated persons that elect not to participate in the MCDC initiative and that are determined to have made material misstatements in an official statement concerning their prior compliance with their continuing disclosure obligations.

Both underwriters and issuers (a term which includes colleges and universities as obligated persons) can participate in the MCDC initiative by completing a questionnaire and submitting it no later than September 10, 2014 in the case of underwriters, or December 1, 2014 in the case of issuers and obligated persons.

The MCDC initiative potentially applies to all colleges and universities that issued tax-exempt debt during the last five years.

CONTINUING DISCLOSURE

For official statements for bonds issued on behalf of a college or university, institution is considered to be the issuer with responsibility for the various statements in the official statement, including statements concerning its prior compliance with its continuing disclosure obligations.  Generally, under SEC Rule 15c-2(12), colleges or universities are required to describe failures to comply with prior continuing disclosure obligations over the last five years.

Since 1993, SEC Rule 15c-2(12) has obligated underwriters to require colleges or universities to enter into continuing disclosure agreements that mandate annual filing of audited financial statements and certain financial and operating data for dissemination to the municipal marketplace.
The obligation to provide continuing disclosure applies to most long-term bond issues with the exception of certain variable rate demand bonds secured by letters of credit.

Under most continuing disclosure agreements, a college or university is required to file its annual financial statements and certain operating and financial data with designated repositories, currently the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (“EMMA”) system within 180 days of the end of each fiscal year.

Colleges and universities must also file notices of certain material events.  Material events include:

(a)        principal and interest payment delinquencies;

(b)        non-payment related defaults, if material;

(c)        unscheduled draws on any debt service reserves reflecting financial difficulties;

(d)       unscheduled draws on credit enhancements reflecting financial difficulties;

(e)        substitution of credit or liquidity providers, or their failure to perform;

(f)        adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB), or other material event notices or determinations with respect to the tax status of the bonds, or other material events affecting the tax status of the bonds;

(g)        modifications to the rights of holders of the bonds, if material;

(h)        bond calls, if material, and tender offers;

(i)         defeasances;

(j)         release, substitution, or sale of property securing repayment of the bonds, if material;

(k)        rating changes;

(l)         any bankruptcy, insolvency, receivership or similar event of the obligor;

(m)       the consummation of a merger, consolidation or acquisition involving the obligor or the sale of all or substantially all of the assets of the obligor, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and

(n)        appointment of a successor or additional trustee or the change of name of a trustee, if material.

Notices of material events are generally required to be filed within ten (10) business days of the occurrence of the material event.

CONTINUING DISCLOSURE COMPLIANCE PROBLEMS

Generally, under SEC Rule 15c-2(12), colleges and universities are required to describe failures to comply with prior continuing disclosure obligations over the last five years.  There is a five year statute of limitations for SEC enforcement actions so the MCDC initiative covers potential continuing disclosure compliance misstatements or omissions in official statements published within the past five years.

SEC SETTLEMENT TERMS

Under the MCDC initiative, if the SEC Division of Enforcement concludes that there has been a violation, the SEC settlement would require the college or university to do the following as part of an agreed cease and desist order resolving the SEC proceeding:

  • Establish policies, procedures and training regarding continuing disclosure obligations within 180 days;
  • Comply with existing continuing disclosure undertakings and bring all prior filings up to date within 180 days of institution of the proceedings;
  • Cooperate with any subsequent investigation by the SEC Division of Enforcement regarding  the false statements, including the roles of individuals and/or other parties involved (underwriters, financial advisors, attorneys);
  • Disclose in a clear and conspicuous fashion the settlement terms in the final official statement for any offering by the college or university within five years of the date of institution of the proceeding; and
  • Provide the SEC staff with a compliance certification regarding the applicable continuing disclosure undertakings by the college or university on the one year anniversary of the date of institution of the proceedings.

PRISONER’S DILEMMA

The MCDC initiative creates tension between obligors and underwriters, or what is called a “prisoner’s dilemma.”.  Both the college or university and the underwriter are required to self-report any material misstatement or omission in a final official statement concerning prior compliance with continuing disclosure obligations.  If one party self-reports and the other does not, a problem arises for the second party if the SEC staff determines that the facts warrant an enforcement action.  The MCDC initiative is clear that favorable settlement terms are only available for institutions and underwriters that elect to self-report.  The SEC’s Division of Enforcement has stated that it will likely recommend and seek financial sanctions in amounts greater than those available under the MCDC initiative.

Another complication is that the MCDC initiative only applies to institutions and underwriters as entities.  Although a college or university may self-report and obtain a settlement under the predetermined terms, the SEC retains the right to seek enforcement action against individuals who may be culpable. This may include individuals working at the college or university, or third parties such as attorneys or financial advisors. This increases the difficulty in deciding whether and what to self-report.

WHAT TO DO

Any college or university that issued tax-exempt bonds in the last five years, it needs to review the statements made in the official statements concerning compliance with prior continuing disclosure obligations over the previous five years.  In the case of a bond issue in 2010, this would require examination of continuing disclosure filings from 2005.  If prior unreported continuing disclosure violations are discovered – failures to file, late filings, or non-reporting of material events that were not disclosed in an official statement – an analysis needs to be performed as to whether the misstatement or omission was “material.”.  “Material” is not defined in securities law or regulations and depends on the overall facts and circumstances of a situation.  One factor in this analysis is whether the failure would affect a bondholder’s confidence in the institution’s covenant to provide ongoing continuing disclosure.

In the first instance, a college or university may make its own determination as to whether or not to self-report certain violations on the grounds that they are immaterial.  For difficult cases, the MCDC initiative does provide a second review by the SEC staff.   The SEC will review each submission and only recommend taking the predetermined enforcement action if the misstatements or omissions were material.  Thus, a college or university may self-report while arguing that the circumstances disclosed are not material and should not result in enforcement action.  If, however, SEC staff determines otherwise, the institution is still entitled to accept the sanctions included in the MCDC initiative.

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