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UPDATE 2-SEC probing Bell, California for securities fraud
October 20, 2010 / 7:14 PM / 7 years ago

UPDATE 2-SEC probing Bell, California for securities fraud

(Adds background and SAN FRANCISCO to dateline)

PHILADELPHIA/SAN FRANCISCO, Oct 20 (Reuters) - Federal securities regulators are investigating bonds issued by Bell, California, a small city neighboring Los Angeles, caught up in a public pay and pensions scandal, a person familiar with the probe said on Wednesday.

The U.S. Securities and Exchange Commission has sent out subpoenas involving the City of Bell, the individual said. The town has a population of roughly 40,000.

Other agencies are also looking into the finances of Bell, which has become the subject of intense scrutiny in recent months following media accounts of the massive salaries of some of its top officials -- including the nearly $800,000 salary of its former city manager.

The Los Angeles County district attorney has brought public corruption charges against Bell’s former city manager and seven other city officials. California’s state securities regulator also has an investigation into Bell under way.

“We are looking at everything,” said Preston DuFauchard, California’s corporations commissioner.

DuFauchard added that his office has been in contact with the SEC, but that the investigations were not being conducted together. The SEC declined comment.

Last month, California State Controller John Chiang cited findings from his office’s review of Bell that revealed the blue-collar city to have had virtually no financial control.

A FINANCIAL ‘ZOO’

Bell’s finances were in “chaos and anarchy,” Chiang told Reuters after reporting his office’s findings. “It’s a zoo.”

The audit by Chiang’s office found Bell had issued $50 million in general obligation bonds under its 2003 Measure A to build a sports complex without a documented plan and timeframe for how to use proceeds or an apparent need for the money.

“In six years, it is unclear what has been accomplished except for acquiring a site that consists of a dirt lot with a masonry wall around it and a water pumping station in the middle,” the audit said.

Last month, Fitch Ratings cut and then withdrew its ratings on $57.5 million of outstanding bonds issued by Bell.

Fitch said Bell’s scandal increases the city’s near-term credit risk and makes it unlikely investors or others will lend to the city. (Reporting by Lisa Lambert and Rachelle Younglai; Additional reporting by Jim Christie in San Francisco; Editing by Jan Paschal)

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