Securities and Exchange Commission
Litigation Release No. 17432 / March 22, 2002
Securities and Exchange Commission v. David Fitzgerald and Pacific Genesis Group, Inc., United States District Court for the Northern District of California, Civil Action No. C-00-4802 (CRB)
Court Enjoins Municipal Underwriter in Real Estate Financing Fraud
A federal district judge in San Francisco enjoined Pacific Genesis Group, Inc., a municipal securities underwriting firm based in Alameda, California, and its former lead underwriter, David E. Fitzgerald. On March 20, 2001, United States District Judge Charles R. Breyer entered judgments ordering the firm and Fitzgerald to refrain from future fraudulent conduct in violation of the federal securities laws. The judgments also require Fitzgerald to pay $300,000 in disgorgement, interest and penalties.
In December 2000, the Commission brought suit against Pacific Genesis and Fitzgerald in connection with a series of bond offerings to finance a residential development in southern California. The Commission alleged that Pacific Genesis and Fitzgerald had underwritten over $70 million in tax-exempt municipal bonds to finance the Rancho Lucerne Master Planned Community, about 50 miles northeast of the City of San Bernardino, California. However, according to the Commission's filings, not a single road had been paved, no homes had been built and not a single residential lot had been sold to a homebuilder. The Commission alleged that Pacific Genesis and Fitzgerald intentionally or recklessly misrepresented or omitted material facts in the offering documents concerning the value of the land used as security for the bonds, the status of the project and the likelihood that the bonds would be repaid from the revenues of the project.
A portion of the case was brought to trial in early 2001. On February 16, 2001, Judge Breyer ordered that all proceeds of the latest bond offering be returned to investors. The order also prohibited Pacific Genesis and Fitzgerald from selling more bonds on the Rancho Lucerne project by means of fraud and misrepresentation. As part of a settlement of the remaining issues in the case, Pacific Genesis and Fitzgerald consented to the judgments entered this week.
In its complaint, the Commission alleged violations of Section 17(a) and the Securities Act of 1933 and Sections 10(b) and 15B(c)(1) of the Securities Exchange Act of 1934 ("Exchange Act"), Rule 10b-5 and Municipal Securities Rulemaking Board Rule G-17.