SEC Sues the City of Victorville, California and Others for Defrauding Municipal Bond Investors

SEC v. City of Victorville et al., Case No. EDCV13-0776 JAK (DIBx).  On April 29, 2013, the SEC announced charges against the City of Victorville, Calif., the Southern California Logistics Airport Authority, Kinsell, Newcomb & DeDios (“KND”), Jeffrey Kinsell, Janees Williams and Keith Metzler.  According to the SEC, the Airport Authority undertook certain redevelopment projects, including the construction of airplane hangars.  The projects were financed by issuing bonds.  In 2008, the Airport Authority had to refinance part of the debt incurred to construct the hangars by issuing more bonds.  The amount of the new bond issue was partly based on Metzler, Williams, and Kinsell using a $65 million valuation for the airplane hangars even though they knew the county assessor valued the hangars at less than half that amount.  As a result, the Airport Authority issued more bonds and raised more money than it otherwise would have.  According to the SEC, Kinsell and KND misappropriated more than $2.7 million in bond proceeds that were supposed to be used to build airplane hangars.  The Airport Authority loaned KND Affiliates more than $60 million for the hangar project and agreed that as compensation for the project, KND Affiliates would get a set construction management fee.  However, Kinsell and KND Affiliates took an extra $450,000 in fees to oversee the construction and took another $2.3 million in fees that the Airport Authority did not know about and had not agreed to.  Kinsell and KND Affiliates hid these fees from the Airport Authority representatives and from auditors.  The complaint alleges that the Airport Authority, KND and KND Affiliates violated Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5, and Section 17(a) of the Securities Act.  The complaint also alleges that KND violated 15B(c)(1) of the Exchange Act and Municipal Securities Rulemaking Board Rules G-17, G-27 and G-32(a)(iii)(A)(2).  The complaint also alleges that Victorville, Metzler, KND, Kinsell, and Williams aided and abetted various violations.  The SEC is seeking disgorgement, civil monetary penalties, and injunctive relief.

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