Source: https://www.sec.gov/info/municipal/mbonds/uwriter.htm
Timestamp: 2019-04-26 16:31:41+00:00

Document:
SEC, Staff Report on Transactions in the Marine Protein Corporation Industrial Development Revenue Bonds, Exchange Act Release No. 15719 (April 11, 1979). .
Securities and Exchange Commission v. William C. Bethea, Civ. Action No. 3:98CV-457-LAC-MD (N.D. Fl.), Litigation Release No. 15985 (November 23, 1998) (settled final order).
The Securities and Exchange Commission today filed and settled a pay-to-play case against William C. Bethea, the former head of Stephens Inc.'s Public Finance Department, for giving secret payments to certain Florida public officials in exchange for municipal securities business.
The Complaint, filed in the Northern District of Florida, alleges the following: While serving as head of the Public Finance Department of Stephens, Bethea authorized secret payments to one Florida public official (Terry Busbee of the Escambia County Utilities Authority) and facilitated the secret compensation of another (Larry O'Dell of Osceola County), for the purpose of obtaining or retaining municipal securities business for Stephens. Bethea's failure to disclose the arrangements, the payments, and the actual and potential conflicts of interest they created, violated the antifraud provisions as well as fair dealing and gratuities rules of the Municipal Securities Rulemaking Board. Bethea also defrauded the issuer and purchasers of a 1992 Walton County, Florida bond issue by failing to disclose-in the face of a duty to do so-Stephens' compensation of a consultant and an employee of another underwriting firm, in violation of the same provisions. In addition, Bethea: endorsed the conferral of an undisclosed favor upon a third Florida public official; enlisted third parties to serve as conduits for campaign contributions; and created false and misleading books and records at Stephens to cover up the illicit payments, in further violation of fair-dealing rules.
Simultaneous with the filing of the Complaint, and without admitting or denying the allegations contained in the Complaint, Bethea agreed to the entry of a final judgment of permanent injunction barring future violations of Section 17(a) of the Securities Act, Sections 10(b) and 15B(c)(1) of the Exchange Act and Rule 10b-5 thereunder, and MSRB rules G-17 and G-20; and ordering him to pay a civil penalty of $30,000. As part of his settlement with the Commission, Bethea has agreed to the entry of a Commission order barring him from the securities business.
The Commission's Complaint against Bethea includes certain conduct alleged in the civil actions styled Securities and Exchange Commission v. Preston C. Bynum and Terry D. Busbee, Civil Action No. 95-30024-RV (N.D. Fla.); Lit. Rel. No. 14387/January 23, 1995; and Securities and Exchange Commission v. Larry K. O'Dell, Civil Action No. 98-948-Civ-Orl-18A (M.D. Fla.); Lit. Rel. No. 15858/August 24, 1998; and in the administrative proceeding styled, In the Matter of Stephens Inc., Exchange Act Rel. No. 40699/Nov. 23, 1998.
Also today, the United States Attorney for the Northern District of Florida ("USAO") announced a civil settlement with Stephens, and the Commission instituted and settled an administrative proceeding against Stephens. Both the USAO's civil settlement, and the Commission's administrative settlement, are based on some of the same conduct alleged in the Commission's Complaint against Bethea. As part of the USAO's civil settlement, Stephens has agreed to forfeit to the Department of Justice $2.25 million in revenues of its Public Finance Department, to make payments to three Florida issuers in the aggregate amount of $886,672.16, to refrain from conducting municipal securities business in Florida for five years; and to refrain indefinitely and throughout the United States from utilizing consultants within the meaning of MSRB rule G-38. The Commission's pay-to play investigation in the Southeastern United States continues.
Securities and Exchange Commission v. First California Capital Markets Group, Inc., H. Michael Richardson and Derrick Dumont, Civ. No. 97-2761-SI (N.D. Cal.), Litigation Release No. 15423 (July 28, 1997) (complaint).
The Securities and Exchange Commission today sued a securities brokerage and two of its executives for defrauding investors who bought $69 million worth of municipal bonds in five municipal bond offerings in California. The Commission's Complaint alleges that Defendants lied to investors and omitted to tell them important information in the offering materials for each bond offering about the risks connected with the bonds.
The Commission filed its lawsuit against First California Capital Markets Group, Inc. ("First California"), a broker-dealer formerly headquartered in San Francisco (now located in San Diego), H. Michael Richardson, a principal of the firm who lives in the Bay Area, and Derrick Dumont, the former manager of the firm's land-based financing department who now lives in Calistoga. The Complaint was filed in the United States District Court for the Northern District of California.
The Complaint alleges that the fraud was committed in connection with the Defendants' underwriting of municipal bonds issued by the County of Nevada ("Nevada County"), the City of Ione ("Ione"), the Avenal Public Financing Authority ("Avenal"), and the Wasco Public Financing Authority ("Wasco"), all located in Central California.
The six-count Complaint asks the court to enjoin permanently the Defendants from violating the law, order them to return all ill-gotten gains plus interest, and impose civil penalties.
Nevada County raised $9 million, and Ione in two offerings raised a total of $14 million, through the sale of "Mello-Roos" municipal bonds. Such bonds are issued to finance real estate development. The Complaint alleges that in the Official Statement for the Nevada County offering, the Defendants overstated the value of the property, misrepresented the developer's ownership interest in the property and overstated the developer's experience and financial condition. The Complaint alleges that in the Official Statement for the Ione offerings, the Defendants misrepresented that all of the listed improvements could be built with the offerings proceeds, overstated the value of the property to be developed, and failed to disclose that the developer had insufficient capital to complete the development. These misrepresentations and omissions were important to investors because they made the projects and the bonds seem less risky than they actually were.
The Avenal and Wasco offerings, which raised $11 million and $35 million respectively, involved the sale of "Marks-Roos" municipal bonds. Such bonds are issued to form pools of money to finance a number of local projects. The Complaint alleges that First California and Richardson lied to investors or omitted to tell them important information in the Official Statements for these offerings about the need for the amount of money raised and the certainty of the intended use of the proceeds. The Complaint alleges that the Defendants failed to disclose that some of the projects listed in the Avenal Official Statement and nearly all of the projects in the Wasco Official Statement were highly contingent, if not speculative. These misrepresentations were important to investors because they falsely created the impression that the pools were fully subscribed. When a bond issue is not fully subscribed, investors could be exposed to the risk that the bonds would not be able to pay principal and interest.
All of this conduct violated the antifraud provisions of the federal securities laws, including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 issued thereunder. Defendants also violated Section 1B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board ("MSRB"), which require a municipal securities broker to deal fairly with its customers.
The Complaint further alleges that First California and Richardson, when underwriting the Nevada County and Ione offerings, advised Wasco and Avenal to buy large blocks of the Nevada County and Ione bonds, even though they knew that these bonds did not meet certain requirements for Wasco and Avenal which investors had been told would be followed. In addition, First California and Richardson--aware of a representation to Wasco investors that proceeds not invested within a three-year period would be returned to bondholders--advised Wasco to purchase several low quality securities (for one of which First California acted as the underwriter) after the close of the three-year period. All this conduct violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-19, which require municipal securities brokers to recommend only suitable investments to its clients.
Finally, the Complaint alleges that in February 1994, when Nevada County offered to redeem roughly half of its bonds with its remaining proceeds, First California and Richardson recommended to Wasco and Avenal that they not tender their bonds. This advice allowed First California's other clients holding Nevada County bonds to redeem at par while leaving Wasco and Avenal holding Nevada County's troubled bonds. This conduct violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-17.
Securities and Exchange Commission v. First California Capital Markets Group, Inc., H. Michael Richardson and Derrick Dumont, Litigation Release No. 16107 (April 7, 1999) (settled final orders).
The Securities and Exchange Commission ("Commission") announced today that the Honorable Charles R. Breyer of the U.S. District Court, Northern District of California, entered judgment by consent against the San Francisco underwriting firm First California Capital Markets Group, Inc. ("First California"), now known as Badger Technologies, Inc., and bankers, H. Michael Richardson ("Richardson"), formerly of Lafayette, California, and Derrick P. Dumont ("Dumont") of Calistoga, California. The Court order permanently enjoins and restrains First California, Richardson and Dumont from violating or committing future violations of the anti-fraud provisions of the federal securities laws and Municipal Securities Rulemaking Board rules requiring fair dealing with investors. Richardson and First California agreed to jointly pay $600,000 in disgorgement and prejudgment interest, and civil penalties totaling $100,000.
In addition, Richardson and Dumont have consented to the entry of administrative orders by the Commission barring them from association with any broker, dealer, investment adviser, investment company or municipal securities dealer, with the right to reapply for registration in three years and two years, respectively. The Commission did not seek to deregister First California because First California had withdrawn its registration as a broker-dealer in 1997 shortly after the Commission filed its district court action.
The Commission's Complaint alleges that First California, Richardson, its CEO, and Dumont, Manager of its Assessment District/Mello-Roos Department, made numerous misrepresentations and omissions in offering material it distributed to investors which undermined the feasibility and security of $69 million in California municipal bonds. Between July 1989 and February 1994, First California underwrote five municipal bond offerings for four California municipalities: the Country of Nevada, City of lone, City of Wasco, and City of Avenal. Two of the bond offerings involved Marks-Roos bonds (pool bonds). The misrepresentations and omissions in those offerings involved oversizing of the pools and failure to disclosed the speculative nature of the intended projects to be funded. The three remaining bond offerings involved Mello-Roos bonds (land development bonds). In these bonds, the background, experience, and financial status of the developers, as well as the valuation of the underlying land and improvements securing the bonds were misrepresented. In addition, Richardson, acting as financial consultant to Wasco and Avenal, advised the cities to invest in the Nevada County and lone bonds, despite the fact that the bonds did not meet Avenal's and Wasco's minimum credit requirements for investment. Richardson also advised Wasco to invest more than half of its pooled funds after the three year limitation period at which time uninvested funds were to be returned to investors. The Commission's Complaint alleged that this conduct violated Sections 17(a) of the Securities Act, Sections 10(b) and 15B(c) of the Exchange Act, Rule 10b-5 promulgated thereunder, and Municipal Securities Rulemaking Board Rules G-17 and G-19.
The Commission previously brought, and settled, administrative proceedings against Nevada County, City of lone, and City of Wasco, as well as numerous other individuals involved with the five bond offerings. An administrative ruling remains pending against Virginia Horler, the financial adviser to Nevada County.
Securities and Exchange Commission v. Robert D. Gersh, Boston Municipal Securities, Inc., and Devonshire Escrow and Transfer Corp., Civ. Action No. 95-12580 (RCL) (D. Mass.), Litigation Release No. 14742 (November 30, 1995) (complaint); Litigation Release No. 15310 (March 31, 1997) (settled final order).
Securities and Exchange Commission v. Robert M. Cochran, Michael B. Garrett and Randall W. Nelson, Civ. Action No. 95-1477T (W.D. Okla.), Litigation Release No. 14644 (September 20, 1995) (complaint) consolidated with Securities and Exchange Commission v. James V. Pannone and Sakura Global Capital, Inc., Civ. Action No. CIV98-146L (W.D. Okla.), Litigation Release No. 15630 (January 29, 1998) (complaint).
The Securities and Exchange Commission ("Commission") announced today that it filed a Complaint in the United States District Court for the Western District of Oklahoma against Robert M. Cochran, Michael B. Garrett and Randall W. Nelson, former employees of Stifel, Nicolaus and Company, Incorporated, ("Stifel") a broker-dealer headquartered in St. Louis. The Complaint alleges that from 1989 through 1993, Stifel received millions of dollars in undisclosed payments from third parties that sold or brokered investments to municipal issuers, and that Stifel undermined the integrity of the bidding process set up for the purchase of certain of those investments. According to the Complaint, the defendants, who worked in Stifel's former Oklahoma Public Finance Office, had a duty to disclose conflicts of interest while advising the issuers about the purchase of the investments. The defendants breached their duty and defrauded the issuers in failing to disclose that Stifel received the payments from the investment providers or investment brokers. The Complaint further alleges that the defendants defrauded investors by failing to disclose the payments to participants in the bond issues, including the issuer, bond counsel and/or special tax counsel, thereby depriving investors of information material to an assessment of the tax exempt status of the bonds.
The Complaint alleges that these actions by the defendants violated Section 17(a) of the Securities Act of 1933, Sections 10(b), and 15B(c)(1) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder and Rule G-17 of the Municipal Securities Rulemaking Board (MSRB). The Complaint seeks relief including final judgments of permanent injunction barring future violations of those provisions, imposition of civil penalties, and against defendant Cochran, disgorgement of bonuses related to the improper payments made to Stifel.
Last month the Commission filed a related action against the defendants' former employer, Stifel. Simultaneously, without admitting or denying the allegations contained in the Complaint, Stifel consented to the entry of a Final Judgment enjoining it from future violations of antifraud and books and records provisions of the federal securities. In addition, Stifel agreed to disgorge $922,741, pay prejudgment interest on that amount of $263,637 and pay a civil money penalty pursuant to Section 20(d) of the Securities Act and Section 21(d) (3) of the Exchange Act of $250,000. See Litigation Release No. 14587 (August 3, 1995).
Also today, the United States Attorney for the Western District of Oklahoma announced that a federal grand jury indicted Cochran and Garrett on charges relating to the conduct alleged in the Complaint.
The Commission's investigation continues as to the conduct of other entities and individuals involved in this matter.
The Securities and Exchange Commission announced that on January 29, 1998, it filed a Complaint in the United States District Court for the Western District of Oklahoma against James Pannone, a former vice president of the Oklahoma Public Finance Office of Stifel, Nicolaus & Company, Inc. ("Stifel"), a broker-dealer registered with the Commission, and Sakura Global Capital, Inc. ("Sakura"), a subsidiary of Sakura Bank that is engaged in the business of selling derivatives. The Complaint alleges that the defendants committed fraud in connection with the sale of municipal securities. The Complaint alleges that in two municipal bond transactions underwritten by Stifel, Pannone engaged in bid-rigging to ensure Sakura's selection as the provider of the forward purchase agreements ("forwards") to the issuers. The Complaint also alleges that in those same securities transactions, Pannone and Sakura made materially misleading statements and/or affirmative misrepresentations to the issuers with respect to undisclosed payments that Sakura made to Stifel. The Complaint alleges that these undisclosed payments jeopardized the tax-exempt status of the bonds.
The Complaint alleges that in a 1992 transaction for the Oklahoma Turnpike Authority, despite bond counsel's requirement that three competitive bids be obtained for the forward, Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint also alleges that Pannone subsequently negotiated with Steven Strauss, Sakura's then managing director in charge of municipal securities transactions, a $6.593 million undisclosed brokerage fee to be paid by Sakura to Stifel, and that Pannone falsely described to the Turnpike Authority the bidding and negotiation process of the forward. The Complaint further alleges that the forward purchase agreement stated that Sakura did not intend to take any actions which would jeopardize the tax-exempt status of the bonds. The Complaint alleges that at the time Sakura executed the forward it was planning to pay a $6.593 million brokerage fee to Stifel, and that Sakura knew or was reckless in not knowing that such a brokerage fee would jeopardize the tax-exempt status of the bonds.
The Complaint also alleges that in a 1992 transaction for the Sisters of St. Mary's Health Care Obligated Group, despite bond counsel's requirement that three competitive bids be obtained for the forward, Pannone rigged the bidding to ensure Sakura's selection as the forward provider. The Complaint further alleges that at the request of bond counsel, Pannone and Strauss provided certificates stating that Sakura would not make any payments, other than certain payments to the issuer, in connection with the forward. The Complaint alleges that Sakura made a $100,000 payment to Stifel and that Pannone concealed the payment by booking it to a different transaction.
The Complaint alleges that by their conduct, Pannone and Sakura violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, and that Pannone also violated Section 15B(c)(1) of the Exchange Act and Rule G-17 of the Municipal Securities Rulemaking Board. The Complaint seeks relief including a permanent injunction barring Pannone and Sakura from future violations of those provisions and the imposition of civil monetary penalties.
The Commission previously sued Stifel, Robert Cochran, Stifel's former executive vice president in charge of its Oklahoma Public Finance Office, and Steven Strauss in connection with these transactions. The Commission settled its action against Stifel. The Commission's litigation is ongoing with respect to Cochran and Strauss. See Lit. Rel. No. 15569 (Nov. 24, 1997); Lit. Rel. No. 14644 (Sept. 20, 1995); and Lit. Rel. No. 14587 (Aug. 3, 1995).
Securities and Exchange Commission v. Robert M. Cochran, Randall W. Nelson, James V. Pannone, Steven Strauss, and Sakura Global Capital, Inc., (Order granting in part and denying in part motions for summary judgment of defendants) (January 28, 1999).

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