SEC Obtains Judgments Against Municipal Adviser and Its Principal for Defrauding Mississippi City
Litigation Release No. 24182 / July 2, 2018
Securities and Exchange Commission v. Malachi Financial Products, Inc., et al., Civil Action No. 3:18-cv-1- HSO-LRA (S.D. Miss.), (filed January 2, 2018)
A federal district court entered judgments on June 29, 2018 against Malachi Financial Products, Inc., a Georgia corporation, and its principal, Porter B. Bingham of Roswell, Georgia, for defrauding the City of Rolling Fork, Mississippi and failing to disclose certain related-party payments in connection with a municipal bond offering.
In its complaint filed on January 2, 2018 in the United States District Court for the Southern District of Mississippi, the SEC alleged that Malachi and Bingham 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 alleged 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 alleged 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 alleged 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.
Without admitting or denying the allegations in the complaint, Malachi and Bingham consented to the entry of judgments permanently enjoining them from violating Sections 15B(a)(5) and 15B(c)(1) of the Securities Exchange Act of 1934 and MSRB Rule G-17, which requires municipal advisors to deal fairly with their clients. The judgments order Malachi and Bingham to pay joint and several disgorgement of $33,000 plus prejudgment interest of $2,858. In addition, the judgments order Malachi to pay a civil penalty of $50,000 and Bingham to pay a civil penalty of $25,000.
For further information see Litigation Release No. 24025 (January 2, 2018).