SEC launches probe into Bell’s sale of $70 million in bonds
The Securities and Exchange Commission has launched a wide-ranging investigation of Bell’s sale of more than $70 million in bond issues, the latest agency to probe the scandal-plagued city.
The investigation comes after state auditors last month were highly critical over how the bond money was being used in Bell, including funds involving a sports park that has yet to be built.
Among the documents the federal agency has requested are those involving nine current and former Bell leaders, the firm that audited the city’s financial statements and underwriters and financial advisors in the bond sales, according to the subpoena, a copy of which was obtained by The Times.
The subpoena also requires people to testify under oath before the SEC.
Rosalind Tyson, regional director of the SEC’s Los Angeles office, declined to comment Friday. Interim City Atty. Jamie Casso declined to comment as well, but said the city is cooperating with all of the investigations into the city’s finances.
The SEC has made fraud in municipal and state bond offerings a priority in recent years, leveling charges against five former San Diego officials.
“Since then, the SEC has emphasized that fraud in connection with municipal bond offerings is a real priority in its enforcement program,” said Randall Lee, former director of the commission’s Pacific Region.
More recently, the SEC charged the state of New Jersey with securities fraud.
Former Bell Councilman Luis Artiga confirmed that he, Mayor Oscar Hernandez and Councilwoman Teresa Jacobo had received the subpoena Friday.
The subpoena seeks financial documents and personnel files from them and former City Administrator Robert Rizzo, former Assistant City Administrator Angela Spaccia, Councilman George Mirabal and former Councilmen George Cole and Victor Bello.
The Los Angeles County district attorney has charged eight current and former Bell leaders with public corruption. Rizzo’s attorney, James Spertus, had not seen the subpoena but said he would not be surprised if his client was one of those targeted.
Also named in the subpoena is former City Atty. Edward Lee. He did not return a phone call Friday.
Among the investment and financial firms the subpoena requests information about are Citigroup Global Markets, Wedbush Securities Inc., the law firm Nixon Peabody and auditors Mayer Hoffman McCann.
The subpoena asks for documents involving the sale of $9.2 million in pension obligation bonds in 2005, $26.3 million in taxable bond anticipation notes in 2006 and $35 million in general obligation bonds in 2007.
The subpoena also asks for information on the $35-million lease revenue bonds that Bell sold in 2007 in a deal backed by Rizzo to buy an unused piece of federal land and lease it to Burlington Northern Railway. Bell’s hope of profiting from the deal collapsed when a Superior Court judge ruled the city had failed to conduct basic environmental reviews.
The SEC is the latest enforcement agency to investigate Bell. The state attorney general has sued eight current or former city leaders; the Los Angeles County district attorney’s office has filed criminal charges against elected city leaders and former administrators; and the U.S. attorney’s office is probing possible civil rights violations related to the impounding of vehicles and code enforcement.
The subpoena follows last month’s report issued by state Controller John Chiang. The auditor described Bell as a city with virtually no fiscal controls and that had placed the city treasury in the hands of one man — Rizzo.
“Given the questionable practices of [Rizzo] identified in other sections of this report, the risk for improper use of bond funds is very high,” Chiang’s report said.
The controller’s office also said the city had “mismanaged” its Measure A bond funds, which included a $35-million sale in 2007 and could find no reason why the bonds were issued. Voters approved the measure in 2003.
The report found the $35 million “was far in excess of the amount that was needed and thus unnecessarily increased the city’s costs of borrowing.” It also found the funds were placed in a non-interest-bearing checking account, costing the city $1.7 million in lost interest.
The report said that although the money was supposed to be used for the Bell Sports Complex, “it is unclear what has been accomplished, except for acquiring a site that consists of a dirt lot with a masonry wall around it and a water pumping station in the middle.”
The report also found that proceeds from the bond sale were placed in the city’s general fund instead of in a separate account. Under Rizzo’s contract, his salary depended on the city having “a positive cash position in the general fund. Again, at least in appearance, this practice could be self-serving.”
A spokesman for the state controller’s office said the SEC had not contacted officials there.
The issue of pensions has arisen as a source of trouble for Bell in recent weeks. Chiang found the city illegally raised its property tax in 2007 to cover rising pension costs and ordered the city to return $2.9 million in overcharges.
The city’s retirement fund has been running at a deficit for the last seven years, reaching $1.2 million last year.
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