Irvine Is First City to Receive Formal SEC Warning Notice
The staff of the federal Securities and Exchange Commission has notified the city of Irvine that it may recommend enforcement action against the city for investments it made in the ill-fated Orange County investment pool, a city official said Wednesday.
Irvine City Manager Paul O. Brady Jr. said the city has received a so-called Wells notice from SEC staff in Los Angeles, citing concerns about notes issued by the city in 1993 and 1994.
A Wells notice informs its recipient that the SEC staff intends to recommend enforcement action to commissioners and gives the recipient an opportunity to respond.
“The city of Irvine has received a letter from the Securities and Exchange Commission indicating that the SEC’s Los Angeles office has several concerns about the official statements issued in connection with the city’s 1993 and 1994 taxable notes,” Brady said.
“The city has responded to the concerns raised in detail, pointing out its compliance with all laws and standards governing official statements. The city has not received any further comment or response from the SEC,” Brady said.
Irvine, which invested the proceeds of the taxable note sale in the investment pool to benefit from the difference in the interest it was paying and what it was supposed to earn from the pool, is the first city in the county to confirm receipt of a Wells notice.
Irvine, however, is far from the only target.
The Irvine Unified School District, the Newport-Mesa Unified School District, the North Orange County Community College District and the Orange County Department of Education said last week that they received notices.
The districts also issued taxable notes to invest in the county pool for arbitrage purposes. The SEC alleges the school agencies failed to disclose how the bond proceeds would be used, officials said.
In addition, current and former Orange County supervisors, former Treasurer-Tax Collector Robert L. Citron and former Assistant Treasurer Matthew Raabe as well as several investment firms and law firms involved in the deals have received SEC notices.
Last Dec. 6, Orange County filed for protection under Chapter 9 of the federal Bankruptcy Code after sustaining investment losses of about $1.7 billion.
Correspondent Shelby Grad contributed to this story, which was written by Reuters news service.