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November 3, 2010

San Diego Officials Settle SEC Municipal Bond Charges for $80,000

Four ex- San Diego officials will pay $80,000 in fines to resolve municipal bond charges by the US Securities and Exchange Commission for allegedly misleading investors. Never before has the SEC obtained financial penalties against a city’s officials for municipal securities fraud. By agreeing to settle, ex-San Diego City Manager Michael Uberuaga, ex-Deputy City Manager for Finance Patricia Frazier, ex-Auditor and Comptroller Edward Ryan, and ex-City Treasurer Mary Vattimo are not denying or admitting to the charges. There are still charges pending against San Diego’s ex-Assistant Auditor and Comptroller Teresa Webster.

The SEC filed its securities fraud charges against the former city officials in 2008. The officials are accused of knowing that the city of San Diego had purposely underfunded its pension obligations to increase benefits will deferring costs. The SEC also contends that the ex- officials understood that without cuts to city services, employee benefits, or new revenues, it would be difficult to fund future retirement obligations. Yet the former officials allegedly did not let investors know about the serious funding problems and made false and misleading statements in 2002 and 2003.

Regulators contend that when San Diego sold over $260 million in bonds, city officials did not disclose that the pension deficit was expected to hit $2 billion in 2009. According to Rosalind Tyson, the director of the SEC’s Los Angeles Regional Office, municipal officials are obligated to make sure that investors get accurate and full information about the financial condition of an issuer.

Related Web Resources:
Ex-San Diego Officials Agree to Pay Fines to End SEC Pension Fraud Case, Bloomberg, October 27, 2010

Former San Diego Officials to Pay Penalties in SEC Municipal Bond Fraud Case, Asset International October 29, 2010

More Municipal Bond Blog Posts, Stockbrokerfraudblog.com

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Posted In: Municipal Bonds , Municipal Securities Offerings , Securities Fraud

January 21, 2009

SEC Rapped for Allegedly Failing to Fully Investigate Alleged Wrongdoings in the Municipal Securities Market

Congressman Spencer Bachus (R – Ala) says the Securities and Exchange Commission should have done more to probe alleged wrongdoings in the municipal securities market. Bachus issued a statement noting that the SEC knew as far back as 1997 of a potential “pay to play” scam involving water and sewer bonds in Jefferson County, Alabama, which is now facing the largest municipal bankruptcy in sewer bonds at $4 billion.

Bachus says that back then, Jefferson County Commissioner Bettye Fine Collins had sent the SEC a letter telling them about the municipal bond sales, but no follow up letter was sent to her. The congressman noted that it doesn’t appear to be an uncommon practice for the SEC to fail to use the tools to which it has access to investigation credible allegations.

Bachus said he resubmitted the original packet, along with information from 2007 to the SEC but nothing has been done to address his concerns. He also says that he provided SEC Chairman Christopher Cox with material about Jefferson County’s municipal bond indebtedness. The Commission responded by presenting a White Paper about municipal securities reform. Bacchus also noted new information has come to light indicating an “anti-trust collusion” involving investment advisers who inflated the fees that were “already outrageous.”

Jefferson County got into financial trouble when it changed from fixed rates to adjustable rates and refinanced its sewer bonds before becoming involved in complex interest rate swap agreements to hedge against higher rates. When the rates increased, Jefferson County found that it couldn’t refinance a return to fixed rates.

Last April, the SEC filed a lawsuit against Birmingham, Alabama Mayor Larry Langford, who formerly served as Jefferson County Commission president, for alleged improper payments involving the county’s bond business. While serving in the role of county president, Langford allegedly accepted over $156,000 in undisclosed benefits and cash from Blount Parris & Co. securities chairman William Blount. In exchange, Langford allegedly allowed Blount’s company to take part in all of Jefferson County’s security-based swap agreement transactions and municipal bond offerings and the firm earned over $6.7 million in fees.

Related Web Resources:
Jefferson County, Alabama

About Municipal Bonds, SIFMA

US Representative Spencer Bachus

US Securities and Exchange Commission

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Posted In: Municipal Securities Offerings

December 18, 2007

JP Morgan Will Pay $500,000 to Settle Municipal Securities SRO Claim

JP Morgan Securities Inc. says it will pay $500,000 to settle charges that it failed to disclose to regulators that it used and paid consultants to acquire a number of municipal securities offerings.

The settlement agreement was announced by the Financial Regulatory Authority (FINRA), which is in charge of enforcing the Municipal Securities Rulemaking Board (MSRB) rules and any violations. According to MSRB regulations, firms must disclose any payments to consultants for municipal securities offerings.

FINRA says that JP Morgan actually stated in its MSRB filing that it did not use or pay any consultants to make any municipal securities-related transactions. In fact, from January 22 through June 2004, JP Morgan actually used consultants extensively in connection to its municipal bond business, paying some 40 consultants $7.1 million in total.

Yet 10 of JP Morgan’s quarterly disclosures to MSRB stated that consultants “obtained or retained” zero business. JP Morgan also denied paying consultants for municipal securities-related business even though it made at least six payments worth $750,000 in total to at least 16 consultants for at least 70 municipal securities offerings.

JP Morgan is not denying or admitting to the charges by agreeing to the $500,000 fine.

If you are the victim of broker misconduct, you should speak with a stockbroker fraud lawyer right away. An experienced attorney can help you recover your lost investment. Contact Shepherd Smith and Edwards today.

Related Web Resources:

FINRA Fines J. P. Morgan Securities $500,000 for Failing to Disclose Use of Payments to Consultants to Obtain Numerous Municipal Securities Offerings, FINRA, December 13, 2007

Municipal Securities Rulemaking Board

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Posted In: J P Morgan - Chase , Municipal Securities Offerings