SEC Obtains Final Judgments Against City of Victorville, California and Others in Municipal Bond Fraud
Litigation Release No. 24227/ August 7, 2018
Securities and Exchange Commission v. City of Victorville, et al., No. 13-cv-00776 (C.D. Cal. filed Apr. 29, 2013)
The U.S. Securities and Exchange Commission has obtained a final judgment against the City of Victorville, California in connection with a $13 million "tax increment" bond offering. The SEC also obtained final judgments against the Southern California Logistics Airport Authority, which was an agency set up and controlled by the City to issue the bonds, and against Janees Williams, a former Vice President of Kinsell, Newcomb and Dedios (KND), the underwriter for the bond offering.
The SEC's complaint alleges that the city and the airport authority defrauded bond investors by failing to disclose that the projected tax revenues used to repay the bonds were based on inflated property valuations and were overstated by 36 percent. The SEC also alleges that the KND, Williams, and KND's president, Jeffery Kinsell helped carry out this fraud by not correcting the bond disclosures to the investors. The SEC's second amended complaint, filed on July 26, 2018, did not allege claims against Keith Metzler, an assistant manager of the City who was named in the initial complaint.
The final judgments against the city and the airport authority, entered on July 30, 2018, permanently prohibits each of them from violating the antifraud provisions of Section 17(a)(2) of the Securities Act of 1933. The judgment against the city also orders it not to issue municipal securities until an independent consultant review of their internal controls and practices is completed and the recommendations implemented. The final judgment against Williams, entered on July 24, 2018, permanently prohibits her from aiding and abetting the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the fair-dealing in municipal securities provisions of Exchange Act Section 15B(c)(1) and MSRB Rule G-17. The city, the airport authority and Williams agreed to the settlement without admitting or denying the SEC's allegations.
The SEC's litigation against KND and Kinsell continues. The court previously found Kinsell and KND liable for violating the antifraud provisions of Securities Act Section 17(a)(2) and the fair-dealing in municipal securities provisions Exchange Act Section 15B(c)(1) and MSRB Rules G-17 and G-32(a)(iii)(A)(2). The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains and civil penalties.
The investigation and litigation was conducted in the SEC's Los Angeles Regional Office by Todd Brilliant, Theresa Melson, Douglas Miller, Donald Searles, and Dora Zaldivar and supervised by John Berry, Robert Conrrad, LeeAnn Gaunt, Amy Jane Longo, and Mark Zehner.