SEC Assess a Penalty Against Municipal Issuer

SEC Assess a Penalty Against Municipal Issuer

The SEC Assess a Penalty Against a Municipal Issuer for the First Time

Municipal Issuer Hid the Fact that an Independent Consultant Reviewed Financial Projections and Raised Concerns Over Financial Viability.

The Greater Wenatchee Regional Events Center Public Facilities District, in Washington State, was charged with misleading investors by the SEC.  They issued a bond offering to finance the construction of a regional events center that would house a hockey arena.  The bond issuance mislead investors and the developer Global Entertainment, CEO Richard Kozuback, the underwriter Piper Jaffray & Co. and Jane Towery, and Allison Williams, a senior staff member for Public Facilities District were included in the charges.  As a result the Public Facilities District is settling by paying a $20,000 fine to the SEC, the first time a municipal issuer has ever had to do so.

Andrew Ceresney, co-director of the SEC’s Division of Enforcement said, “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.  This municipal issuer is paying an appropriate price for withholding negative information from its primary offering document and giving investors a false picture of the future performance of the project.”

Furthermore, Piper Jaffray & Co. and Towery will pay penalties of $300,000 and $25,000 each.  Global Entertainment and Kozuback will pay penalties of $10,000.  Williams consented to a cease-and-desist order.  None of the parties admit to or deny the SEC charges.

Mr. Ceresney’s statement that they paid an “appropriate price” may be up for debate by investors.  Afterall they issued $41.77 million in bond anticipation notes and three years later defaulted on principal payments.  One has to ask how much money the developer made on a project of this size.  Is $10,000 anything more than a slap on the hand?

The issuer, The Greater Wenatchee Regional Events Center Public Facilities District, is formed by nine cities and counties in Washington State.  They created it to fund the Town Toyota Center in Wenatchee, Washington.  This Eastern Washington town is rural and mostly known for wine production and agriculture.  It is also the largest city in the area, and where people in surrounding towns go to access big box retailers.

During their investigation, the SEC  found inaccuracies in the primary disclosure document that accompanied their offering in 2008.  

Calling it inaccurate is tame, as the omitted facts directly impact investors.  The statement claimed that no independent party had reviewed the financial projections.  In truth, an independent consultant had examined them multiple times and raised concerns that the project was not financial viable. Additionally the financial projections had been revised to show an increase in revenue and profits based on city leaders saying the community would support the project.  The challenge is that there were not risk factors mentioned pertaining to the city’s proposed support such as, the City of Wenatchee’s debt capacity limits its ability to support future long-term bonds.

Unfortunately, investors made decisions based on facts that simply were not true.  They trusted the District, the auditor, and the offering statements to be accurate and have suffered because of it.  As with any investment scheme it is important to review the provided documents and decide for yourself if it makes sense. Conduct your own due diligence before investing.  Even municipalities and cities make mistakes and can be corrupted by greed so don’t trust the name – trust your research.

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