SEC and California school district settle dispute
07/08/2014 5:13 PM
07/11/2014 12:35 PM
The sprawling Kings Canyon Unified School District on Tuesday settled federal charges that it had misled investors during a 2010 bond offering.
Without admitting or denying the Securities and Exchange Commission’s allegations, officials with the district located southeast of Fresno, Calif., agreed to adopt new training and written policies, among other changes. They also pledged not to repeat the mistake.
Though the settlement does not include a financial penalty, it does break new ground. It is the first to be resolved under a new SEC initiative that targets materially inaccurate statements in municipal bond offering documents.
“The integrity of the municipal securities market requires that issuers carefully comply with all of their disclosure obligations,” Andrew J. Ceresney, director of the SEC’s Division of Enforcement, said in a statement.
Regulators determined that during the 2010 bond offering, the California school district told investors it had complied with its prior disclosure obligations. The statement was inaccurate, the SEC says, because the school district had previously failed to submit some required disclosures.
School district officials say any error was inadvertent.
“It was an oversight,” school board Trustee Timothy Heinrichs said Tuesday. “When we noticed we had overlooked the requirement, we corrected it right away.”
Other school district officials could not be immediately reached.
The Kings Canyon district spans some 600 square miles and serves almost 10,000 students in towns including Orange Cove and Reedley. Like other school districts and public agencies, it issues bonds to fund construction, renovation and other work.
The settlement came under the SEC’s Municipalities Continuing Disclosure Cooperation Initiative, under which regulators recommend standardized settlement terms for bond issuers and underwriters who self-report problems.
LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, said she was “pleased that Kings Canyon has taken advantage of the program,” which ends in September. Vulnerable municipalities and districts that don’t use the voluntary program run the risk of fines or other stiff penalties.
“It provides issuers who were already under investigation the opportunity to accept the standard terms and resolve their enforcement matters in a fair and efficient manner,” Gaunt said.
The school district’s alleged violation was quite technical, and spelled out in a six-page order made public Tuesday. Between December 2006 and December 2007, the district issued three bond offerings, totaling over $30 million. As part of those bond offerings, the district was obliged to annually disclose certain financial information, operating data and event notices.
Between 2008 and 2010, the SEC says Kings Canyon “failed to comply with its contractual undertakings by failing to submit some of the required disclosures.” Nonetheless, the SEC says, the district as part of a $6.8 million bond offering in November 2010 “affirmatively stated in public bond offering documents that it had not failed” to meet prior disclosure requirements.
Kings Canyon “should have known this statement was untrue,” the SEC says.
Under the settlement, the school district has six months to prepare new written policies and training concerning disclosure requirements. The district will also have to disclose the new settlement as part of any future bond offering.
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