By Lisa Lambert
WASHINGTON Nov 5 Federal securities regulators
on Tuesday fined a municipal debt issuer for the first time
ever, charging the seller of bonds used to finance an ice rink
that ultimately fell into default with misleading investors
about the project's viability.
In the strongest signal yet that it is serious about
clamping down on misbehavior by municipal bond issuers, the U.S.
Securities and Exchange Commission extracted a $20,000 penalty
from a special facilities district in the city of Wenatchee,
Washington, about 140 miles east of Seattle.
Piper Jaffray & Co, the bank that arranged the sale of the
$41.8 million of bonds in 2008 and one of the largest
underwriters in the $3.7 trillion municipal bond market, was
also fined $300,000, the SEC said.
The developer, its former president and the top banker on
the deal were also fined, and a district staff member was
rebuked, the SEC said. No one charged, however, admitted or
denied the SEC's findings.
The charges mark the eighth case the SEC has brought in the
municipal market this year as it seeks to forge stricter
investor protections. The commission chair who took office in
April, Mary Jo White, has picked up the banner of making sure
those investors, typically retirees, understand what they are
Until now, however, the SEC has refrained from levying fines
against bond sellers for fear of effectively penalizing
taxpayers who had no role in the transgression. In this case,
though, no taxpayer funds will be used to pay the fine.
"Financial penalties against municipal issuers are
appropriate for sanctioning and deterring misconduct when, as
here, they can be paid from operating funds without directly
impacting taxpayers," said Andrew Ceresney, co-director of the
SEC's Division of Enforcement, in a statement.
The SEC determined that the Greater Wenatchee Regional
Events Center Public Facilities District failed to make material
disclosures in the official statement for bond anticipation
notes sold in 2008, including an independent consultant's
questions about the economic viability of the project being
financed, the SEC said.
Official statements summarize new bond sales for investors.
In December 2011, the district defaulted on the securities,
which financed a new hockey arena and events center.
While the Piper Jaffray fine is in line with other recent
penalties, it comes less than a month since an SEC official
warned underwriters they must make sure their clients keep up
with disclosure obligations.
"Piper Jaffray & Co failed to develop a reasonable basis for
believing the accuracy of key representations made in the
official statement," Mark Zehner, deputy chief of the SEC
Enforcement Division's Municipal Securities and Public Pensions
Unit, said in a statement.
Piper Jaffray is one of the biggest players in municipal
debt issuance in the country and acted as underwriter or
financial adviser on more than $10 billion of bond transactions
in the sector in 2012, according to its web site.
Piper's lead investment banker on the deal, Jane Towery,
settled related charges by agreeing to pay a $25,000 fine and to
refrain from having any contact with a prospective municipal
issuer client for a year, the SEC said.
Developer Global Entertainment and its former president
Richard Kozuback will also pay $10,000 each. Meanwhile, Allison
Williams, who certified the accuracy of the official statement
while working for the district, consented to a cease-and-desist
"My clients neither admitted nor denied the allegations,"
said Victor D. Vital Greenberg Traurig, a Dallas-based attorney
for Kozuback and Global Entertainment. "They believe the
resolution was a positive one for them."
Lawyers for the other individuals in the case were not
immediately able to comment.
For decades, many in the municipal market believed a section
of securities law called the Tower Amendment exempted the market
from strict federal regulation.
Recently the SEC has embraced a literal interpretation of
the amendment as only prohibiting it from requiring issuers to
file statements before selling bonds and has pushed hard to
ensure states, cities, schools and other issuers provide bond
buyers with accurate and timely information.
This year, the SEC has brought a groundbreaking case against
an Indiana school district over false claims in an official
statement as well as landmark charges against Harrisburg,
Pennsylvania, based on officials' public comments.