SEC ASSESSES PENALTY AGAINST A MUNICIPAL ISSUER FOR THE FIRST TIME

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According to a press release dated November 5, 2013, the a Securities and Exchange Commission (“SEC”) has charged a municipal bond issuer located in the State of Washington with misleading investors who purchased bonds used by the issuer to finance a regional events center and ice hockey arena.  As part of a settlement, the municipal issuer, The Greater Wenatchee Regional Events Center Public Facilities District (“Issuer”), agreed to pay a penalty of $20,000 and take certain remedial actions.  According to the press release, this is the first time that the SEC has assessed a financial penalty against a municipal issuer.

According to the SEC, in 2008 the Issuer delivered to prospective investors what is called an “official statement” – which is similar to a prospectus and is used to make disclosures to investors.   But the official statement misled investors by representing that there had been no independent reviews of the financial projections for the proposed events center.  Contrary to that statement, not only did an independent consultant review the financial statements, the consultant raised concerns about the events center’s financial viability.  Moreover, the issuer failed to tell investors that its financial projections had been revised upward based in part upon optimistic assurances by civic leaders that the community would support the project.  Finally, the official statement also failed to disclose the potential negative impact the project would have on the City’s ability to engage in additional long term municipal financing.

The SEC also named the projects developer Global Entertainment and its former president and CEO Richard Kozuback, the underwriter Piper Jaffray & Co. and the lead investment banker Jane Towery.

Posted by Vincent D. Slavens, vslavens@kkbs-law.com