The Securities and Exchange Commission is accusing Kings Canyon Joint Unified School District of not giving municipal bond investors the financial data and notices to which they were entitled. The California school district settled the SEC’s findings without denying or admitting to the charges. Kings Canyon has consented to an order to cease and desist from future violations of the Securities Act’s Section 17(a).
During a 2010 bond offering, Kings Canyon affirmed to investors that the school district was in compliance with previous continuing disclosure duties. In three bond offerings totally more than $30 million between ’06 and ’07-of 419 million, $4.5 million, and $6.7 million, respectively-Kings Canyon had a contractual duty to disclose specific yearly financial data and notices about certain bond-related events.
For example, says the SEC, when Kings Canyon performed a $6.8 million bond offering in 2010, the school district was obligated to describe whenever it hadn’t materially complied with previous disclosure duties. With its 2010 offering documents in a fourth, muni bond offering-this one of $6.8 million-the school district made statements that were inaccurate when it affirmed that in the last five years it had always complied materially with past ongoing disclosure duties. She SEC said that since Kings Canyon did not turn in certain contractually mandated disclosures related to the 2006 and 2007 bond offerings, the bond offering document in November 2010 had a statement about a material fact that wasn’t true.
Under the Securities Act’s Section 17(a)(2), it is illegal when selling or offering securities to get property or money through the use any false statement or mission to state a material fact. To establish there is a cause of action under this section, the SEC has to show that the omission/misrepresentations were material and in the sale or offer of the securities.
The Municipalities Continuing Disclosure Cooperation initiative is one under which the SEC’s Enforcement Division consented to recommend standardized settlement terms for underwriters and issuers that self report or were already probed for disclose duty-related violations. The initiative, which went into effect in March, expires on September 10.
The MCDC program lets issuers under investigation have the chance to accept the terms and settle any enforcement issues fairly and efficiently. King’s Canyon availed of this program to resolve the claims against it.
The case against King’s Canyon was resolved almost a year after a muni bond case was settled between the SEC and another school district. The regulator charged West Clark Community Schools and its municipal bond writer, City Securities Corporations, with making false statements to bond investors that made it seem as if the Indiana school district correctly provided all of the required yearly financial data and notices in earlier bond offerings.
In truth, says the Commission, the school district didn’t turn in any of the required comments for a 2005 bond offering. Meantime, the underwriter failed to perform the proper due diligence to detect the false statement during the 2007 bond offering.
City Securities consented to pay close to $580,00 to resolve the SEC charges. City Securities’ public finance & municipal bond department head Randy G. Ruhl and West Clark Community Schools also settled.
Contact our municipal bond fraud lawyers if you suspect you were the victim of securities fraud.
SEC Charges California School District with Misleading Investors, SEC, July 8, 2014
Read the SEC Order (PDF)
In a first, SEC charges muni bond issuer with misleading investors, Investment News, July 29, 2013
Securities Act of 1933, Legal Information Institute
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