(Adds comments from SEC enforcement chief and school district lawyer, details of charges, byline)
By Jonathan Stempel
July 8 A central California school district has settled U.S. Securities and Exchange Commission charges that it misled investors by omitting required disclosures when it conducted a $6.8 million bond offering in November 2010, the regulator said on Tuesday.
The settlement with the Kings Canyon Joint Unified School District is the SEC's first under its Municipalities Continuing Disclosure Cooperation initiative, which addresses materially inaccurate statements in municipal bond offering documents.
Kings Canyon was accused of misleading prospective investors in its 2010 bond offering by affirming that it had complied with its prior disclosure obligations over the previous five years.
This was untrue, according to the SEC, because Kings Canyon failed to make some of the annual disclosures of financial information and other events that it had promised to make when it conducted three other bond offerings in 2006 and 2007.
"The integrity of the municipal securities market requires that issuers carefully comply with all of their disclosure obligations," Andrew Ceresney, director of the SEC's enforcement division, said in a statement.
Without admitting or denying the SEC findings, Kings Canyon agreed to adopt written policies for its disclosure obligations, disclose the settlement's terms when conducting future bond offerings, and cooperate with future SEC enforcement probes.
Kings Canyon "is satisfied with the terms of the settlement, and regrets that the situation developed the way it did," the school district's lawyer Jeffrey Kuhn said in an interview. "It has a new and improved recognition of the importance of continuing disclosures."
The SEC has only limited authority to police the roughly $3.7 trillion municipal securities market, but has increased enforcement activity in the last couple of years.
Last month, it won a court order to stop Harvey, Illinois, a struggling Chicago suburb, from conducting a new bond offering. The SEC said a halt was needed after Harvey diverted prior bond proceeds meant for a hotel, and used them to fund day-to-day operations and make payments to a city official.
The six-month SEC disclosure initiative provides for standard settlement terms for issuers and underwriters that report their own violations, or were already being probed for disclosure violations. It expires on Sept. 10.
According to its website, the Kings Canyon school district has nearly 10,000 students, and encompasses roughly 600 square miles to the east and southeast of Fresno, California. (Reporting by Jonathan Stempel in New York, editing by G Crosse and Andrew Hay)