Harrisburg, PA., mayor spoke to grand jury on city finances

NEW YORK, April 4 Fri Apr 4, 2014 5:33pm EDT

NEW YORK, April 4 (Reuters) - The mayor of Harrisburg, Pennsylvania, said on Friday he recently testified before a grand jury investigating how the city's finances declined to near bankruptcy under its previous administration.

Mayor Eric Papenfuse confirmed media reports that he had been subpoenaed and testified. He said the city was cooperating with Pennsylvania Attorney General Kathleen Kane's office, including handing over documents.

"I've never felt more confident that we will have accountability for Harrisburg," he was quoted by the Roxbury News as saying.

During the 28-year tenure of former Mayor Stephen Reed, Harrisburg cut bond deals to refinance its trash incinerator, which saddled the capital city with hundreds of millions of dollars in debt.

The city filed for bankruptcy in 2011, but the case was thrown out. Under a state-appointed receiver, the city has sold assets and begun digging itself out of its fiscal hole.

Officials and others in the state have called for criminal investigations of the city's financial crisis.

Kane confirmed last year that county prosecutors referred their probe to state investigators because of concern about conflicts of interest, but no other details were released.

In May 2013, the U.S. Securities and Exchange Commission accused Harrisburg of fraud, the first time the SEC charged a municipality for making misleading statements outside of the disclosure documents provided in bond sales.

Harrisburg agreed to settle the charges without admitting or denying the findings in the SEC's order to cease and desist. No individuals were named.

According to the SEC, investors had to make trading decisions "based on inaccurate and stale information" about Harrisburg's financial condition during the trash incinerator crisis. That was largely because the city did not provide annual financial reports and other notices such as interest payment delinquencies. (Reporting by Hilary Russ)

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