SEC Charges Municipal Adviser and its Principal with Defrauding Mississippi City
Litigation Release No. 24025 / January 5, 2018
Securities and Exchange Commission v. Malachi Financial Products, Inc., et al., Civil Action No. 3:18-cv-00001 (S.D.M.S., filed January 2, 2018)
The Securities and Exchange Commission filed a civil injunctive action on January 2, 2018, alleging that an Atlanta, Georgia-based municipal advisor and its principal defrauded the City of Rolling Fork, Mississippi and failed to disclose certain related-party payments in connection with a municipal bond offering.
In a complaint filed in the United States District Court for the Southern District of Mississippi, the SEC alleges that Malachi Financial Products, Inc. ("Malachi"), a Georgia corporation, and its principal, Porter B. Bingham of Roswell, Georgia, fraudulently overcharged Rolling Fork for municipal advisory services related to an October 2015 municipal bond offering. Malachi is registered as a municipal advisor with both the SEC and Municipal Securities Rulemaking Board ("MSRB"). According to the complaint, after the offering closed, Malachi and Bingham submitted two invoices to the bond trustee for payment. The SEC alleges that one of those invoices was fraudulent, because it was for services that Malachi and Bingham did not perform and the city did not authorize. The complaint also alleges that Bingham failed to disclose to the city that he had accepted payments totaling $2,500 from Anthony Stovall, an employee of a municipal underwriter, shortly before he and Malachi recommended that the city hire Stovall's firm to underwrite the bond offering. The complaint alleges that the city ultimately hired that underwriting firm based on Bingham and Malachi's recommendation. Finally, the complaint alleges that Malachi and Bingham violated their fiduciary duty to the city.
The SEC's complaint alleges that Malachi and Bingham violated Sections 15B(a)(5) and 15B(c)(1) of the Securities Exchange Act of 1934. The complaint further alleges that both defendants violated MSRB Rule G-17, which requires municipal advisors to deal fairly with their clients. The SEC's complaint seeks permanent injunctions, civil penalties, disgorgement plus prejudgment interest, and other relief against both defendants.
In separate administrative proceedings, the Commission entered a settled Administrative Order against Stovall.
The SEC's investigation was conducted by Justin Delfino and supervised by Peter J. Diskin, both of the Public Finance Abuse Unit. The SEC's litigation will be led by Edward Sullivan and Mr. Delfino and supervised by M. Graham Loomis of the Atlanta Regional Office. An SEC examination that led to the investigation was conducted by Nadine Sophia Evans of the National Exam Program and Kee Han of the Atlanta Regional Office.