SEC Charges City of Victorville and Others with Defrauding Municipal Bond Investors (with Lofchie Comment)

The SEC charged that the City of Victorville, CA, a city official, the Southern California Logistics Airport Authority, and Kinsell, Newcomb DeDios ("KND"), the underwriter of the Airport Authority's bonds, defrauded investors by inflating valuations of property securing an April 2008 municipal bond offering.

Victorville Assistant City Manager and former Director of Economic Development Keith C. Metzler, KND owner J. Jeffrey Kinsell, and KND Vice President Janees L. Williams were responsible for false and misleading statements made in the Airport Authority's 2008 bond offering, the SEC alleged. It also charged that KND, working through a related party, misused more than $2.7 million of bond proceeds to keep itself afloat.

Lofchie Comment: Even if this is not by itself a large case, I note that it is the second recent enforcement action that the SEC has brought against a governmental entity. (There is a link to the Illinois matter below.) Given the SEC's recent focus on municipal securities issues, one would expect further enforcement actions of this type. Going forward, all of the participants in the municipal securities markets, issuers and underwriters, should be mindful that the SEC seems inclined to hold governmental entities to the same standards of honesty and disclosure that apply to corporate entities.

See: SEC Complaint and SEC Press Release.See also: SEC Charges Illinois for Misleading Pension Disclosures (with Lofchie Comment).