SEC charges City of Victorville, CA officials with Defrauding Municipal Bond Investors
The SEC has brought charges on the following:
-Victorville Assistant City Managers and former Director of Economic Development, Keith C Metzler
-Kinsell, Newcomb & DeDios (underwiter of Airport Authority bonds) owner, J. Jeffrey Kinsell and Vice President Janees L. Williams.
The charges claim that The Airport Authority, which is controlled by the City of Victorville, financed the construction of four airplane hangers at a former Air Force Base by issuing tax increment bonds. These bonds are repaid from the increase in property taxes. In 2008, the Airport Authority had to refinance part of the debt brought about by the hangers by issuing more bonds. The principal amount of the hangers were based on a KND value estimate of $65 million. The county aggressor priced the hangers at less than half of that price.
The SEC also alleges that KND misused more than $2.7 million of bond proceeds to keep itself afloat. It began when Kinsell removed the contractor from the hanger construction after learning he had likely used bond proceeds for his own personal gains. Kinsell then hired his own company, KND Affiliates, LLC to take over construction despite that he had no previous experience with construction.
Airport Authority loaned KND Affiliates more than $60 million in bond proceeds. Kinsell also took an additional $450,000 in unauthorized fees, and $2.3 million in fees that the Airport Authority was unaware of to “manage” the hangers.
“Financing redevelopment projects by selling municipal bonds based on inflated valuations violates the public trust as well as the antifraud provisions of the federal securities laws,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “Public officials have the same obligation as corporate officials to tell the truth to their investors.”
The SEC is working to get back the ill-gotten gains as well as financial penalties, and hold permanent injunctions against all of the defendants (Victorville, Metzler, Kinsell, Williams, KND).
For more information read the full article here: http://www.sec.gov/news/press/2013/2013-75.htm