SEC Claims SoCal City|Played Fast & Loose

     LOS ANGELES (CN) – Victorville and an airport board defrauded investors of millions of dollars by “vastly” inflating the price of municipal bonds for “a number of ill-conceived redevelopment projects” at an old Air Force base, the SEC claims in court.
     The SEC sued the City of Victorville; its Economic Development Developer Keith Metzler; the Southern California Logistics Airport Authority; Carlsbad-based Kinsell, Newcomb & De Dios, a registered securities broker-dealer; its owner J. Jeffrey Kinsell; KND Affiliates, also of Carlsbad, which developed aircraft hangars at issue; and KND vice president Janees L. Williams.
     The Airport Authority is a redevelopment agency controlled by Victorville.
     The SEC said in a statement that the defendants appraised four new airplane hangars at $65 million before issuing tax increment bonds for the project, despite knowing that “the county assessor valued the hangars at less than half that amount.”
     “The hangars’ $65 million assessed value was vastly inflated, resulting in the disclosure of false tax increment and debt service ratios in the official statement provided to investors in the Aril 2008 bond offering,” the SEC says in its federal complaint.
     It claims in the complaint that defendants Metzler, Kinsell and Williams knew the assessment was inflated, but “they each withheld this information, resulting in materially misleading disclosures and a substantially oversized bond offering.”
     “Kinsell and KND also engaged in an additional fraudulent scheme to take undisclosed construction and management fees collected on the airport hangar project,” the complaint states.
     The Airport Authority hired Kinsell to manage the project after the previous contractor swiped some of the bond money for himself, according to the SEC statement.
     The Authority loaned Kinsell and KND $60 million, and agreed to pay them a management fee of 2 percent of construction costs, the SEC said in its statement continues.
     But KND “exploited this fee arrangement by paying itself at least $450,000 more in fees than it was owed,” according to the SEC complaint.
     According to the 46-page lawsuit, KND “further misappropriated $2.3 million of bond proceeds through a fictitious 15 percent monthly ‘property management fee.’ Affiliates [of KND] transferred over $1 million of unauthorized property management fees to relief defendant KND Holdings (‘Holdings’), the parent of KND. KND then used the majority of these fees to finance KND’s operating expenses, including payroll. The Authority never authorized Affiliates to collect these excessive fees, which Affiliates took from bond proceeds intended to complete construction of the hangars. As a result of the unauthorized construction management fees and property management fees, Affiliates misappropriated a total of approximately $2.7 million in bond proceeds.”
     The bonds were issued by the Airport Authority from 2006 to 2008 “to redevelop a 132-square mile area in and around a former Air Force base in San Bernardino County,” according to the complaint.
     The only underwriter for the bonds was KND.
     The SEC claims the Airport Authority used the bonds to “finance a number of ill-conceived redevelopment projects, including the construction of a power plant and four new airplane hangars (‘hangars’) on the former Air Force base.”
     In 2007, the “tightening credit market” forced the Airport Authority to refinance its debt for the projects by issuing new bonds – the bonds overassessed by KND at $65 million, the complaint states.
     Victorville, Metzler, KND, and Williams “aided and abetted” the Airport Authority, Kinsell, KND and KND Affiliates in the fraud, the SEC said in its statement.
     It seeks disgorgement with interest, civil penalties, and injunctions.
     Victorville, pop. 111,000, is in the high desert in San Bernardino County, 81 miles northeast of Los Angeles.
     Kinsell, Newcomb & DeDios is a broker-dealer founded in 1985.
     Jeffrey Kinsell has “participated in the issue of more than $10 billion in debt securities and has earned an industry wide reputation as a leading innovator in virtually all disciplines of municipal finance,” according to the company website.

%d bloggers like this: