SEC Says 3 California Localities Misled Bond Investors
The Securities and Exchange Commission charged three California localities and two of their consultants with failing to disclose the risks of investing in $58 million in municipal bonds.
The fraud charges against the municipalities--Nevada County, Ione and Wasco--are only the fourth time the SEC has filed a case against a city or county.
Also charged were Nevada County’s financial advisor, Dain Rauscher Corp.’s Virginia Horler, and the real estate appraiser for Nevada County and Ione, William McKay.
The SEC alleged that the localities and consultants presented misleading information in 1989-91 official statements about the risks of investing in real estate to be developed with bond revenue.
Attorneys for Nevada County and Horler said they planned to challenge the charges.
‘We believe that we’ve demonstrated that Nevada County acted honestly and in good faith at all times in connection with this bond issue,” said Nevada County’s attorney, George O’Connell in Sacramento.
Horler’s attorney, Joseph I. Goldstein, said the SEC “is just flat-out wrong.”
McKay’s attorney said the appraiser was undecided. Attorneys for the other two localities did not respond to requests for comment. An administrative hearing on the allegations is being scheduled by the SEC.
The SEC, under Chairman Arthur Levitt, has been investigating the nation’s $1.3-trillion municipal-bond market for at least three years.
“The action reinforces our message that issuers are responsible for the accuracy of their offering materials and that the professionals who help prepare those materials are responsible for the accuracy of their work,” said SEC attorney John Yun in San Francisco.
Nevada County raised $9.1 million through the sale of real-estate development bonds in 1990. The county, with Horler’s help, omitted or misrepresented the value of the property, the costs of developing it and how it would be financed, the SEC alleged.
The developer for the Nevada County project was Michael Montross, who has been arrested and charged with defrauding 27 securities investors of about $700,000.
Ione raised $14 million in two real-estate bond offerings in 1991. The town’s official statement misled investors about its ability to complete all the listed improvements with the bond proceeds and the property value, the SEC alleged.
Wasco raised $35 million in 1989 in bond offerings used to form pools of money to finance local projects.
