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SEC investigating $70 million in bonds issued by Bell

The Securities and Exchange Commission is the latest agency to investigate Bell, launching a probe into the sale of three city bonds totaling $70 million.

The investigation comes after California state auditors raised questions about how the bond money was being used, including one involving a sports park that has yet to be built.

The SEC has asked for documents involving nine current and former Bell leaders, according to the subpoena, a copy of which was obtained by The Times. The subpoena also requires them to testify before the SEC.

The subpoena asks for documents surrounding the sale of $9.25 million in pension obligation bonds in 2005, $26.3 million in taxable bond anticipation notes in 2006 and $35 million in general obligation bonds in 2007.

Those named in the subpoena are former City Administrator Robert Rizzo, former Assistant City Administrator Angela Spaccia, Mayor Oscar Hernandez, Councilwoman Teresa Jacobo, Councilman George Mirabal and former Councilmen Luis Artiga, Victor Bello and George Cole.

The Los Angeles County district attorney's office has charged all eight with public corruption. Also subpoenaed was former City Atty. Edward Lee.

A report issued last month by state Controller John Chiang found that Bell had "mismanaged" its Measure A bond funds, which included the $35 million sale.

The report said that although the money was supposed to be used for a Bell sports complex, "it is unclear what has been accomplished except for acquiring a site that consists of a dirt lot with a masonry wall around it and a water pumping station in the middle." The report found the $35 million "was far in excess of the amount that was needed and thus unnecessarily increased the city’s costs of borrowing."

It also found the funds were placed in a non-interest-bearing checking account, costing the city $1.7 million as of Aug. 31.

The report also found that proceeds from the bond sale were placed in the city’s general fund instead of in a separate account. Under Rizzo’s contract, his salary depended on the city having "a positive cash position in the general fund. Again, at least in appearance, this practice could be self-serving."

According to the city’s latest annual report, proceeds from the pension bonds were to fund $7.3 million in unfunded liability for pension benefits for public safety employees, and to retire nearly $1.5 million in similar bonds issued in 1998.

Rosalind Tyson, regional director of the SEC’s Los Angeles office, declined comment Friday. A spokesman for the state controller’s office said the SEC had not contacted officials there.

-- Ruben Vives and Jeff Gottlieb

 
Comments () | Archives (13)

Suggestion. Re-arrest Rizzo.
SEC, federal statutes, federal prison.

Bell, El Segundo, Vernon, etc. There's an iceberg underneath this small tip. This isn't corruption, it's treason. They should be punished as such.

Where was our Attorney General, our State Treasurer our State Controller while all this fraud was occurring. The Treasurer and the Controller both sit on the CalPERS board that waived its own rules to allow the Bell City Manager to qualify for a $1 Million a year pension.

only 70 million? Up here in San Leandro, we passed 53 mil in 1997, we passed 109 mil in 2006, and in Nov. are voting on another 50 mil. The '06 and '97 were for school and sports field stuff, the new one is for a sports field only.

In my humble opinion, municipal securities fraud is common in California. I've read the Official Statements and other documents for a goodly number of deals, for cities, school districts and water agencies I know a lot about. In law schools Securities Law courses, the focus is on two questions: What is a security? What is "material" in terms of Federal and state securities laws, which require disclosure of material facts to potential buyers of the security?

In the municipal securities business, an "Official Statement" is like a securities prospectus issued by underwriters for for-profit companies. I have been repeatedly shocked by the "cut and paste" nature of Official Statements for all sorts of Southern California public agencies. Time and time again, I read Official Statements which utterly fail to disclose what is "material" about a particular city or local agency and their economic problems.

The SEC can investigate municipal securities fraud, but they have historically taken the position that the SEC cannot prosecute state and local officials for securities fraud, because of the 10th Amendment to the U.S. Constitution (the "states' rights clause"). However, there is precedent, dating back to the Orange County bankruptcy, for prosecuting securities underwriters who fail to disclose "materially negative information" concerning local government agencies. Yet, the last time I saw such a prosecution was the Orange County bankruptcy, in the mid-1990's. Yet, a whole lot of municipal securities deals which "don't pass the smell test" have closed since them.

What is most unfortunate is that there is a merry band of small municipal bond underwriters, their lawyers, municipal bond lawyers for small cities, a bond trustee and a law firm for the bond trustee, who seem to show up in all of the stinky municipal securities deals where "material facts" are not disclosed.

This same crew even showed up on the huge Las Vegas Monorail bond default, where they engineered a fraudulent representation to the municipal securities buyers that the bonds were issued by a public agency and thereby tax exempt. (A bankruptcy judge later said the Monorail was not a public agency.) Adding insult to injury, when the bond holders went to foreclose on their collateral, they discovered that they did not have a lien on the trains, the tracks, the train stations or the fares paid by riders. How interesting, how convenient. A totally defective municipal securities deal engineered by the same crew of Californians I see putting together probably-fraudulent municipal securities deals all over California.

In the Bell case, the SEC needs to be looking at the "professionals" who put the bond deals together. They are the brains behind the deals, not the dullard Council members who simply voted yes. It is the municipal securities professionals who are the true architects of the fraud on the bond holders and tax payers.

If California really wants to "clean up" its massive quantity of fraudlent and nearly fraudulent municipal securities deals, which fail to disclose "material" problems with each public agency/issuer's finances, California's new Attorney General will have to redirect staff to create a competent securities law department to look at EACH municipal bond transaction, and to ask some pertinent questions.

I recently read that the California Attorney General's Office has a staff of 5000, including clerical personnel as well as lawyers. One would think that in that huge number of bodies, a team could be found to tackle California public agencies' longstanding sloppiness, or worse, in municipal financing, focusing on failure to disclose "material problems and risks".

If that does not happen fairly soon, I am sure California is going to see some huge bond defaults, like the Las Vegas Monorail, and with them a huge black eye for all municipal securities issuers in California, resulting in increased interest rates and underwriters' fees and discount (i.e points and junk fees) for all local agencies.

Those higher costs, as well as the fees of the municipal securities professionals, are paid by California's local taxpayers with no meaningful supervision and regulation BY ANYONE.

broke as a joke, thats what the city of bell will be at the end due to the majority of illegals that live there. Best California sell the city to Google and turn it into a southern campus sans illegals

When is the federal government stepping in? We need to see the RICO racketeering statutes implemented. Clearly, by use of their office telephones, probable cause exists that they committed wire fraud in advancing their criminal enterprise.

If only the Bush appointed Supreme Court judges hadn't de-toothed the "Honest Services" statutes (apparently to provide cover and a pass to their fellow culture of corruption Republican office holders).

Come to Oxnard. Elected officials there know how to do it and get away with it.
So far.

This is where I have a problem prosecuting the Clowncil they excepted BB&K'S legal advise and did not have a clue as I am sure that if they where given polygraph test it would prove my contention. Why arn't the lawyers being prosecuted along with Rizzo, Casso, Carrillo,Valdez and Guiterrez. BB&K are like Meyers and Nauve the Bell Clowncil attorneys they are all crooks and need to be in Jail with Rizzo.

This is a sad commentary on American politics. The money buys the votes, and usually comes with strings attached. I am so disheartened to hear people say they will vote for someone like Sharon Angle in NV, or Ron Johnson in WI. Their platform seems to be their lack of any relavent experience and people are so anxious about the economy that they will vote for anyone but the incumbent. Too bad.... these incumbents did not create our current economic woes, and the people they plan to vote for just want to go back to the same policies that got us here in the first place. If you think the recovery is slow...just wait until you have a bunch of no-nothings in power. Be careful what you wish for....you might get it and it will be so much worse than it is now. Do your homework voters and find out what the incumbents have actually done to cause all your anger. And don't tell me its "what they haven't done." Kind of hard to accomplish anything with the party of NO weighing in and it is going to get even harder. Don't expect any recovery any time soon.

How many more cities and municipalities across America have issued questionable securities to fund this type of activity?

Do you think it only happens in Bell, CA?

Come on now, do you really?

Please support Justice 4 Bell in our quest to demand Jerry Brown advocate for Receivership.

-BASTA + Pedro Carillo + Jaime Caso + Monitor = more of the same

-An ounce of trust is too much for the indicted Bell City Council and inept administration

-Monitor does not equal Justice

-BASTA leadership does not represent the Bell Residents

-Cristina Garcia (carpetbagger yak) does not = USC Adjunct Professor or Ph. D.


When: October 18, 2010



Where: Bell City Hall


Time: 5:30 pm

jennifer555:interesting and erudite commentary,can anyone get lori to read it? but excuses current state officials esp jerry brown,atty general and recent mayor of " peaceful"oakland but then what would anyone expect of a lifetime politician. jerry was a terrible governor, the foothill freeway cost taxpayers of ca 100's of millions more than originally estimated, why?,; because jerry appointed "giant turkey" that is what residents of the impacted communities referred to her, ms. gianturco then head of caltrans(cadot). she hated freeways,and delayed and lawsuited and taxpayers will pay and pay. new subdivisions had to be demolished. and we taxpayers "bought" new houses to tear down. it is ok, jerry was "sleeping" on floor of governor's mansion. yup, he certainly has experience(s), at taxpayer's expense. i will not comment on his father, pat brown, also gov of ca, except to say jerry learned his political tricks from dad, to bad jerry did not learn how to be gov.


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L.A. Now is the Los Angeles Times’ breaking news section for Southern California. It is produced by more than 80 reporters and editors in The Times’ Metro section, reporting from the paper’s downtown Los Angeles headquarters as well as bureaus in Costa Mesa, Long Beach, San Diego, San Francisco, Sacramento, Riverside, Ventura and West Los Angeles.
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