SEC Drops Its Investigation Into Town’s Alleged Bond Abuses

The Securities and Exchange Commission said Tuesday that it has dropped an investigation into the sale of $2 million worth of municipal bonds by Wheatland, a small Northern California town.

Wheatland was one of at least 10 local governments in California being investigated by the SEC as part of the agency’s new get-tough policy on municipal bond abuses and as part of its probe into Orange County’s bankruptcy.

Officials in the town of 2,000 residents had claimed they were being unfairly targeted for a bond deal gone bust.

The SEC investigation was sparked by the town’s near default on its only bond issue in 30 years--a $2-million deal sold in 1990 to install a sewer system and build 700 homes. The sewers were put in, but the homes were never built. The city foreclosed on the properties that backed the bonds and was forced to dip into bond reserves to make bond payments.

Wheatland officials received a letter from the SEC’s staff last year asking for information on the bond deal and alerting the city of a probe.

But the agency’s staff said in a letter the town received Tuesday that its investigation “has been terminated and that, at this time, no enforcement action has been recommended to the commission.”

Other governmental entities still under SEC scrutiny include four Orange County school districts that sold bonds to invest in the county’s investment pool.

The four districts filed lengthy responses in January to challenge SEC claims that they violated securities laws.