FBI and Securities Commission Probe Cities’ Investment Losses
The FBI and the Securities and Exchange Commission are investigating the loss of at least $8.4 million in speculative securities investments made by several southern California municipalities, Lawndale officials announced Thursday night.
The involvement of the federal agencies was disclosed at the Lawndale City Council meeting Thursday in a five-page statement prepared by Lawndale City Atty. David J. Aleshire.
Aleshire belongs to the Orange County law firm of Rutan & Tucker, which filed suit in federal court in January on behalf of six cities and municipal agencies against E.F. Hutton, First Investment Securities and six individual brokers. The suit seeks $8.4 million in compensatory damages and $16 million in punitive damages.
Aleshire said that officials from Chino, Lawndale and the Three Valleys Municipal Water District in the San Gabriel Valley have already testified before the SEC. He said officials from Palmdale, San Marino and Maywood are scheduled to testify within the next two months.
The Three Valleys district has been contacted by the FBI, he said. “We believe that the FBI is investigating possible criminal violations of federal wire fraud, mail fraud and bank fraud statutes,” he said. “We have been advised that all of the various public entities involved will be interviewed in this independent criminal investigation.”
He continued: “We believe this investigation will be beneficial to our efforts to establish the brokers’ responsibility for the public agencies’ losses.”
A total of 10 municipalities have suffered significant losses in the speculative securities transaction. The original suit was filed on behalf of the cities of Lawndale, Palmdale and San Marino, the Three Valleys Municipal Water District and the redevelopment agencies of Palmdale and Maywood. The other cities that have suffered large losses are Bellflower, Imperial Beach, Chino and Rancho Palos Verdes, Aleshire said. Aleshire said at least some of those cities are also pursuing legal action.
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