State Sues Firm for Municipal Bond Fraud

The Department of Corporations filed suit against Pacific Genesis Group Inc., claiming the San Francisco-based municipal bond firm defrauded investors in land development projects. The suit, filed by the state agency in Sacramento, charges PGG didn’t provide enough disclosure to muni investors in sales of revenue bonds backed by plans to build casinos, golf courses, hotels and strip malls. The suit also charges PGG operated a form of Ponzi scheme, paying off old investors with money from new investors. “This whole process is a house of cards which must inevitably crash,” said Bill McDonald, chief investigator for the Department of Corporations. McDonald said PGG failed to disclose the true financial conditions of the developers or the prospects for the projects. McDonald said PGG sold about $160 million of the bonds in the last two years and is preparing to sell $70 million more. McDonald said a judge will decide Dec. 5 whether to order PGG to cease and desist the revenue bonds sales. PGG said in a statement that it did nothing wrong.