SEC Faults Municipal Bond Issuer for Failing to Disclose Previous Failures to Disclose

Chris Gaetano
Published Date:
Aug 24, 2017

The SEC has faulted the Beaumont Financing Authority for regularly failing to disclose required financial information to investors in a series of bond offerings, and then made matters worse when it later failed to disclose these previous failures to disclose, which the SEC said misled investors as to the the likelihood the district would comply with disclosure obligations in the future. 

The SEC said that the Beaumont Financing Authority issued about $230 million worth of municipal bonds in 24 separate offerings between 2003 to 2013 in order to fund public infrastructure. While the Beaumont Financing Authority, under the terms of the offering agreed to provide investors with annual continuing disclosures, such as important financial information and operating data, it in fact failed to do so year after year after year. The SEC said that if the Beaumont Financing Authority, and its underwriter O'Conner and Company Securities, owned up to this failure earlier, they would have been eligible for more lenient remedies. This, however, did not happen. Instead, they continued to not provide this information, and in two separate bond offerings in 2012 and 2013, totaling more than $32 million, they compounded the matter by failing to disclose these failures to disclose. 

“Investors in municipal bonds depend on timely and complete continuing disclosure from municipal issuers,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. “Issuers and underwriters will continue to be held accountable when they fail to provide investors with an accurate picture of past compliance with continuing disclosure obligations.”

In a complaint filed in the Eastern Division of the U.S. District Court for the Central District of California, the SEC charged Beaumont’s then-city manager Alan Kapanicas, who also served as the Beaumont Financing Authority’s executive director.  According to the complaint, he approved and signed the misleading offering documents.  Kapanicas agreed to settle the charges without admitting or denying the allegations, and pay a $37,500 penalty.  He also agreed to be barred from participating in any future municipal bond offerings.  

In consenting to an SEC order without admitting or denying the findings, the Beaumont Financing Authority agreed to retain an independent consultant to review its policies and procedures.  It also is required to establish appropriate and comprehensive policies, procedures, and training for employees as well as designate a compliance officer in order to ensure compliance with continuing disclosure agreements.  

O’Connor & Company Securities Inc. and its co-founder and former primary investment banker Anthony Wetherbee agreed to settle the charges against them without admitting or denying the SEC’s findings.  O’Connor & Company Securities Inc. will pay a $150,000 penalty and retain an independent compliance consultant to review its policies and procedures.  Wetherbee will pay a $15,000 penalty and serve a suspension from the securities industry for six months.

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