Category Archives: Uncategorized

“A little Enron accounting” Not a Helpful Quote for California Water District Charged by SEC

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The SEC has charged a California water district and its manager with misleading investors in connection with the district’s $77 million bond offering. Specifically, the SEC alleges that the Westlands Water District and its manager engaged in improper reserve accounting to give the appearance of higher revenues, which the manager referred to as “a little Enron accounting” at a board meeting. Probably not the most helpful thing to say, ever, in connection with a securities issuance.

The district and the manager settled with the for $125,000 and $50,000, respectively, but neither admitted nor denied the allegations. This case shows the SEC’s increased focus on municipal securities issuers. More detail can be found by clicking this link. https://www.sec.gov/news/pressrelease/2016-43.html

 

 

SEC Sues R.I. Agency and Wells Fargo Claiming They Misled Investors in Curt Schilling’s Video Game Company

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The SEC has sued the Rhode Island Economic Development Corporation (RIEDC) and bond underwriter Wells Fargo alleging that RIEDC and Wells Fargo misled bond investors in connection with their investments in Curt Schilling’s failed video game company, 38 Studios. RIEDC had lured 38 Studios to Rhode Island with significant incentives, including the bond deal, only for 38 Studios to fail.

According to the SEC, investors, who poured $75 million into 38 Studios, were not told that it needed substantially more money to produce a video game. In addition, Wells Fargo allegedly failed to disclose that it had a side deal with 38 Studios, which presented a potential conflict of interest. When the company went belly up, the investors were left with the bag. Although neither Schilling nor his company is accused of any wrongdoing in the SEC action, they have been sued civilly.

Municipal finance deals face increased SEC scrutiny. This applies to issuers and underwriters. As SEC Director of Enforcement Andrew Ceresney has stated, “[m]unicipal issuers and underwriters must provide investors with a clear-eyed view of the risks involved in an economic development project being financed through bond offerings.”