SEC Takes Arizona’s Largest County to Task

In their first major crackdown since Orange County’s financial fiasco, federal securities regulators Monday accused Arizona’s most populous county of failing to disclose financial problems before selling $47.8 million worth of bonds.

The Securities and Exchange Commission charged that Maricopa County, which includes Phoenix, the state capital, misled investors about its financial condition in two 1993 bond deals.

The cases against Orange and Maricopa counties stem from the SEC’s increased concern over municipal bond issues, a worry heightened by the 1994 collapse of Orange County’s $21-billion investment pool and its subsequent bankruptcy, which became the nation’s biggest municipal failure.

Because municipal bonds have become so popular with investors, the SEC has been investigating the nation’s $1.3-trillion market for the last three years.

Last January, Orange County agreed to settle SEC charges that the county repeatedly had misled and defrauded buyers of more than $2.1 billion in municipal securities it issued. The county didn’t admit any wrongdoing in agreeing not to violate securities laws in the future.

The agency termed its action against Orange County as a warning to other municipalities throughout the nation that it will aggressively pursue public officials who disregard securities law.

Since then, the SEC has notified such municipalities as Nevada County and Wheatland, both in Northern California, that the agency is prepared to charge them with disclosure fraud. And in the Orange County case, it also has issued similar notices to a county bond lawyer and underwriters, including Merrill Lynch & Co. and two of its top executives.

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In Monday’s action against Maricopa County, the SEC alleges that the county failed to reveal in official statements for two 1993 offerings that it was running a deficit in its general fund and that a deficit in another fund had greatly worsened.

The SEC also charged that Maricopa County had failed to disclose that its cash flow position had declined. In addition, the county said in its offerings that funds raised would be used for specific projects, but instead it used the proceeds to finance its deficit, the agency alleged.

Maricopa County officials said in prepared remarks that they will meet Wednesday to consider settling the matter. They said they anticipated the action and had planned to settle it without acknowledging wrongdoing.

Moody’s Investors Service, citing concerns about the county’s finances, lowered the county’s general obligation rating on July 26, 1993, the day the bonds were sold.

The county pointed out that no investor has lost money and that the county continues to make full principal and interest payments. The amount of debt raised--$47.8 million--was “very small” compared to the $1-billion budgets of the county and its special districts, according to its statement.

“I believe we’re innocent because we had no intent,” Glenn Christenson, senior executive assistant to Maricopa County’s manager, told reporters. “We messed up by doing the equivalent of going through a red light that we didn’t see.”

Christenson said that under an expected settlement, Maricopa County will agree to be subject to tougher legal sanctions if it commits similar violations in the future.

Ronald E. Wood, an assistant SEC regional director in Los Angeles, would not comment on whether further action would be taken against Maricopa County officials, bond lawyers or underwriters.

Maricopa County is the nation’s sixth largest county with 2.6 million people.

Times wire services contributed to this report.