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Though municipalities have traditionally been exempt from most regulations governing private and corporate securities, a 1989 rule promulgated by the Securities and Exchange Commission imposed certain disclosure requirements on local government agencies. Below is a list of recent SEC enforcement actions against municipalities it accused of skirting those rules:
September 1998: The SEC ordered five Orange County municipal entities to cease-and-desist carrying out alleged fraud in connection with the sale of $400 million in municipal securities between 1993 and 1994. The commission concluded that the bodies, which included Anaheim, Irvine, Irvine Unified School District, North Orange County Community College District and the Orange County Board of Education, should have disclosed that the proceeds would be invested in the county’s high-risk investment pools. Official statements at the time said the money would be used to pay current and ongoing expenditures.
February 1998: The county of Nevada, California and the city of Ione, among others, were accused of fraud in connection with millions in bonds used to finance real estate development. The SEC staff said that the parties misrepresented or omitted details about the project. The county raised $9 million through the offerings, and the city raised $14 million. The complaints against some of the individuals charged in the matter, though not against the municipalities, were later dismissed.
September 1999: The SEC issued a cease-and-desist order covering the director of finance for the city of Miami, who also served as its assistant city manager. (The order did not cover the city itself, though it was a party in a related proceeding.) The ruling concerned $22.5 million in general obligation bonds sold in 1995 and designed to pay for certain sewer improvements. At the time of the bond issue, the city allegedly failed to disclose its deteriorating fiscal health – and that it was projected to run out of money by the end of the following year.
June 2001: An administrative law judge found the city of Miami and its finance director guilty of securities fraud in connection with three bond offerings issued in the mid-1990s (see above). Ruling that even though “the key people involved in these events are no longer with the City, the problems appear to be systemic since there is no evidence that the City is willing to acknowledge, or is even willing to consider, that the City broke the law,” the judge issued a cease-and-desist order.
July 2003: Concluding that the Massachusetts Turnpike Authority misled investors, the SEC told that the agency it needed to cease and desist publicizing incomplete financial information. Regulators said the authority should have made public more than a billion dollars in cost overruns in the “Big Dig” construction project.
April 2004: The SEC and the Nashannock Township School District, in Pennsylvania, agreed on a settlement that included a cease-and-desist order. The commission alleged that the district committed fraud when it issued millions of dollars in what it called tax-exempt bonds. The IRS later found the securities taxable. By classifying the bonds as tax-exempt, the district was able to secure a more favorable interest rate.
April 2004: The Dauphin County General Authority, also in Pennsylvania, settled with SEC over charges that it committed fraud in connection with bonds issued to pay for certain capital projects. The commission said the authority should have disclosed that a major tenant in one of the buildings, which would have been rebuilt with the proceeds, had made plans to vacate the facility.
August 2005: Admitting that one of its top executives had reallocated investment income for his own personal gain, the Utah Educational Savings Plan Trust settled with the SEC. Regulators said the trust committed fraud by not giving investors details about the transactions after the executive was dismissed. Under the agreement, the trust said it would cease and desist all fraudulent activities and would hire an independent consultant to help establish better internal controls.
– VLADIMIR KOGAN