The city of Rochester, New York, its municipal advisor, and several former officials have been charged with misleading investors about the finances of its school system, the Securities and Exchange Commission announced.
The defendants include the city, former finance director Rosiland Brooks-Harris, and former Rochester City School District CFO Everton Sewell. Municipal advisor Capital Markets Advisors, LLC (CMA) and its principal Richard Ganci were also charged with misleading investors and breaching their fiduciary duty to Rochester. In addition, CMA, Ganci and CMA co-principal Richard Tortora were charged with failing to disclose conflicts of interest to nearly 200 municipal clients.
The charges stem from a $119 million bond offering in 2019 on behalf of the Rochester City School District. According to the SEC’s complaint filed in federal court, the defendants presented bond offering documents that included outdated financial statements for the school system and did not reveal that the district was having financial trouble because it had spent too much on teacher salaries.
Sewell was accused of misleading a credit rating agency about the school district’s budget shortfall of least $25 million, while Brooks-Harris and Ganci allegedly made no effort to inquire about the district’s economic distress before the bond offering. As a result, the SEC said investors were unaware of the risks posed by the district’s overspending.
When it was revealed six weeks after the bond offering that the school district had overspent its budget by nearly $30 million, the city’s debt rating was downgraded and the state of New York had to intervene.
“We allege that the Rochester City School District’s financial health was important to investors, who were counting on the district as the expected source of repayment,” said LeeAnn Ghazil Gaunt, Chief of the Enforcement Division’s Public Finance Abuse Unit. “As described in our complaint, these defendants failed to inform investors of the serious financial difficulties the district was experiencing at the time of the offering.”
The city, Brooks-Harris, CMA and Ganci were charged with violating the antifraud provisions of the securities laws. CMA, Ganci and Tortora were charged with violating the municipal advisor fiduciary duty, deceptive practices, and fair dealing provisions of the federal securities laws.
The SEC said it is seeking injunctive relief and financial remedies against all parties.
Sewell did not admit or deny the findings, but agreed to a $25,000 penalty and a court order prohibiting him from future violations of the antifraud provisions and from participating in future municipal securities offerings.
Lewitas Hyman routinely represents investors nationwide who were harmed when financial professionals and their firms breached their fiduciary and other duties. We have a depth of experience resolving cases through various means, including arbitration and litigation when necessary. If you were the victim of a breach of fiduciary or other duties owed to you by a financial professional or financial firm, contact Lewitas Hyman at (888) 655 6002 or through our online contact form for a no-cost evaluation of your matter.
