Leifer Principals Settle With SEC Over O.C. Bonds

Marketing specialists who helped package $1.125 billion in Orange County bonds agreed to settle regulators’ charges that they negligently failed to disclose the risk of the investments.

The settlement by Jeffrey Leifer and David Leifer of Los Angeles-based Leifer Capital Inc. is the latest enforcement action stemming from Orange County’s financial collapse. The county sought bankruptcy protection in 1994 after sustaining $1.64 billion in losses.

The case against the Leifers is the latest in which the Securities and Exchange Commission cited outside individuals and firms connected with the county’s bond offerings. Last week, the commission settled with one of the county’s bond counsels on similar charges.

“The message we’re sending is that all people who were involved in preparing the official statements about the bonds had an obligation to ensure that information that they knew or reasonably should have known was disclosed to investors,” said Kelly Bowers, an assistant SEC regional director in Los Angeles.

Without admitting or denying the SEC charges, the brothers agreed not to violate securities law in the future or face stiffer penalties if they do. There were no financial penalties.

“Leifer Capital has signed this agreement to avoid the expense and distraction of litigating whether it should have been the firm’s role to independently verify county disclosure information,” said a prepared statement released by the Leifers. Neither brother--Jeffrey is the firm’s president, David the vice president--could be reached to comment further.

The SEC’s charges against the Leifers involved their work in preparing official offering statements on seven 1994 bond sales by Orange County, its flood control district, and a school district.

The SEC found that the Leifers omitted information in the statements about risky county investments, which the agency said was “material” to investors because funds pledged to repay the bonds were tied up in these investments.

The Leifers “knew, had access to information from which they could have known, or reasonably should have known” about these investments, the SEC said.

Most of Orange County’s losses stemmed from losing investment bets pegged to future interest rate changes. The county emerged from the largest municipal bankruptcy in the U.S. in June 1996.

“Leifer Capital believed at the time that it had no responsibility to independently verify what later were determined to be false representations of Orange County officials,” the brothers’ prepared statement said. “We retained nationally recognized disclosure counsel firms and believed it reasonable to rely upon their professional expertise as well as that of the rating agencies, bond counsel, underwriters and county counsel.”

In August, Merrill Lynch & Co., the most active underwriter of Orange County bonds, agreed to pay $2 million to settle SEC charges that it failed to adequately disclose the risks of investing in them.