UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933
Release No. 8412 / April 22, 2004
Securities Exchange Act of 1934
Release No. 49596 / April 22, 2004
File No. 3-11462
COMMISSION CHARGES IRA WEISS AND L. ANDREW SHUPE II WITH VIOLATING THE ANTI-FRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS IN CONNECTION WITH A $9.6 MILLION OFFERING OF MUNICIPAL SECURITIES
The Securities and Exchange Commission (Commission) instituted public administrative and cease-and-desist proceedings against Ira Weiss and L. Andrew Shupe, II, for alleged violations of the antifraud provisions of the federal securities law in connection with a $9.6 million offering in June 2000 of purportedly tax-exempt notes by the Neshannock Township School District, located in Lawrence County, Pennsylvania (Notes). Weiss and Shupe, residents of western Pennsylvania, served as bond counsel and investment banker, respectively, for the Note offering.
In the Order Instituting Proceedings (Order), the Commission's Division of Enforcement has alleged that:
The Notes were offered and sold on the basis of a materially false and misleading disclosure document drafted by Shupe;
The disclosure document did not accurately describe the use of the Note proceeds, and did not disclose the resulting risk to the Notes' purported tax-exempt status;
Shupe marketed the issuance of the Notes to the School District as a way to earn $225,000 of interest rate arbitrage profit, by investing the net Note proceeds for three years without spending any of those proceeds on capital projects;
The tax-exempt status of the Notes however was dependent upon, among other matters, the School District reasonably expecting on an objective basis to spend substantially all of the Note proceeds on capital projects within three years of the Notes' issuance;
Shupe and Weiss made a joint presentation to the School Board, including a written financing proposal prepared by Shupe listing $225,000 as the total amount available for capital improvements after the issuance of the Notes;
Nevertheless, Weiss rendered at closing an unqualified legal opinion addressed to Noteholders to the effect that the Notes were tax-exempt and that Weiss also rendered an opinion, addressed to Noteholders, to the effect that nothing had come to his attention that led him to believe the Official Statement was materially inaccurate or incomplete; and
The Internal Revenue Service subsequently issued a preliminary determination that the Notes were taxable arbitrage notes and, thereafter, entered into a settlement agreement with the School District that, among other things, preserves the tax-exempt status of the Notes.
The Order also alleges that Weiss and Shupe each violated, and caused the School District's violations of, the anti-fraud provisions of the federal securities laws, particularly Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Weiss and Shupe an opportunity to dispute these allegations, and to determine what remedial sanctions, if any, are appropriate, including, but not limited to, a cease-and-desist order, disgorgement, and, with respect to Shupe, civil penalties. The Commission has directed that an administrative law judge issue an initial decision in this matter within 300 days from the date of service of the Order.
See also the Order in this matter