NEW YORK (Reuters) - The Port Authority of New York and New Jersey has agreed to pay $400,000 to settle allegations it failed to inform investors of risks to roadway projects, becoming what the U.S. Securities and Exchange Commission said was the first municipal bond issuer to admit wrongdoing in such a case.
The SEC’s probe is part of a sprawling web of investigations that began following the so-called Bridgegate controversy, the politically-motivated closure of several lanes at the George Washington Bridge in 2013.
Reuters was first to report in April that the bi-state agency, which underwent governance changes following intense scrutiny in the fallout of the Bridgegate scandal, was in talks with the SEC.
The authority operates airports, bridges and tunnels in the region, which produces 10 percent of the nation’s economic output, according to the U.S. Census Bureau.
According to the SEC, the authority held internal discussions about whether certain projects, including New Jersey’s Pulaski Skyway, were outside its mandate and might not be legal.
Internal authority memos noted there was “no clear path to legislative authority” for such projects, the SEC said in a statement on Tuesday.
Yet the authority sold $2.3 billion of bonds between January 2012 and June 2014 without disclosing the risks around its ability to fund the projects.
The SEC said its investigation is ongoing. However, in a letter seen by Reuters on Tuesday, the Port Authority told the commission that over the last eight to nine months of negotiations “nothing... remotely suggests that any aspect of it is ‘continuing.’”
The authority said the SEC’s “misleading” information “is causing severe, immediate and entirely unjustified damage to the Port Authority’s position in the marketplace as a municipal issuer, its reputation and the reputations of the individuals concerned.”
The authority also said its acknowledgement that it violated securities laws was neither tantamount to “wrongdoing” nor a first in the nation, as the SEC claimed.
The SEC did not reply to requests for comment on the authority’s protests.
The case stemmed from board approval in March 2011 - before the current leadership was in place - to fund roadway improvements at and around the Pulaski Skyway.
At issue was whether the Port Authority improperly tried to use some of its funds for the skyway and other New Jersey projects that were not under its jurisdiction.
That funding would have come from $3 billion earmarked for its Access to the Region’s Core (ARC) project for a commuter rail tunnel under the Hudson River, which New Jersey Governor Chris Christie cancelled in 2010 because of cost overruns.
The SEC order showed that Christie plotted to redirect ARC funding nearly six months before he cancelled the project, New Jersey Assemblyman John Wisniewski said in a statement.
The case is a result of “Christie’s heavy-handed interference with a supposedly independent agency,” Wisniewski said.
The admission could lead to a short-term increase in borrowing costs, said New York bond attorney David Fernandez.
The authority will, “at least for a short while, have to eat some crow and face a slightly increased admission fee to access the market,” he said.
Our Standards: The Thomson Reuters Trust Principles.