In a first, SEC charges muni bond issuer with misleading investors

Indiana school district and its bond agency charged in $31 million offering.
JUL 19, 2013
The Securities and Exchange Commission today charged an Indiana school district and its bond agency with misleading investors about a bond offering. The SEC claims that the West Clark Community Schools in Sellersburg, Ind., made a $31 million bond offering in December 2007 without informing investors that it had not properly submitted annual reports and other information related to a $51 million bond offering in 2005. The agency also charged City Securities Corp. with failing to exercise appropriate due diligence in the offering. It further charged the firm and Randy G. Ruhl, a former executive vice president in its public finance and municipal bond department, with failing to establish compliance procedures. The SEC also claimed City Securities improperly charged to the school district charitable donations and golf outings, and made improper gifts to school district officials, including tickets to Chicago Cubs baseball and University of Notre Dame football games. City Securities settled the charges, agreeing to pay nearly $580,000 in disgorgement and penalties. Mr. Ruhl, who left City Securities last week, agreed to pay more than $38,000 in disgorgement and penalties. He has been barred from working in the securities industry for a year and has been banned from serving as a supervisor permanently. The school district, City Securities and Mr. Ruhl did not admit or deny the charges. The case is the fourth action involving municipal bonds that the SEC has announced since early May. “This is the first time the SEC has charged a municipal issuer with falsely claiming in a bond offering's official statement that it was fully compliant with the annual disclosure obligations it agreed to in prior offerings, and an underwriter and its principal for not doing the necessary research to attest to the truthfulness of the claim,” Andrew Ceresney, co-director of the SEC's Division of Enforcement, said in a statement. “This case demonstrates that we will be vigilant in making sure municipal issuers and underwriters comply with their obligations.” In its order, the SEC noted that City Securities has taken several remedial steps, including overhauling its policies and procedures related to municipal bond offerings, automating its expense reporting and hiring a new “nonproducing” executive vice president for its new fixed-income capital markets department. “City Securities is glad that this is behind it,” said its lawyer, Jeff Bailey, a partner at Bose McKinney & Evans LLP. “They're a much better and stronger firm than they were before.” The school district, which encompasses eight schools, 400 staff members and 4,500 students in southern Indiana, near Louisville, Ky., was let down by City Securities, according to Michael Gillenwater, corporate counsel for West Clark Community Schools. The West Clark school board depended on City Securities for due diligence, according to Mr. Gillenwater. But he added that West Clark does not deny that when it made the 2007 bond offering it was delinquent with filings related to the 2005 offering. In the settlement, West Clark agreed to update the filings. The SEC said that City Securities didn't check on the school district's initial assertion of proper reporting on the 2005 offering. “West Clark has always met its obligations and no one has lost any money on this — unlike Detroit,” Mr. Gillenwater said. “We promise to be more diligent, but there's no finding that West Clark has done anything wrong.” A lawyer for Mr. Ruhl declined to comment.

Latest News

Advisor moves: Raymond James lands $700M Truist duo in Florida
Advisor moves: Raymond James lands $700M Truist duo in Florida

&Partners has also added a $357 million Texas family practice, while Janney recruits a $250 million Edward Jones advisor in Miami

Wirehouse moves: JPMorgan taps Merrill veteran for Southeast role as BofA beefs up OCIO team
Wirehouse moves: JPMorgan taps Merrill veteran for Southeast role as BofA beefs up OCIO team

Linda Patel will lead J.P. Morgan Advisors in Florida and Georgia as Bank of America adds nonprofit specialists in New York

Colorado advisor loaded up elderly clients with risky Interval funds: regulator
Colorado advisor loaded up elderly clients with risky Interval funds: regulator

Interval funds and other semi-liquid or illiquid products are typically two to three times more expensive than plain vanilla stock or bond mutual funds or exchange-traded funds.

Investor alleges alkaline water startup hid sales data in white text
Investor alleges alkaline water startup hid sales data in white text

The royalty statements looked normal - until someone checked the electronic files.

SEC alleges fake hedge fund forged seals to steal $130M
SEC alleges fake hedge fund forged seals to steal $130M

They allegedly fabricated SEC certificates to dupe investors.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor