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SEC Charges Broke Harrisburg For Fraudulent Public Statements
Just in case conventional wisdom thought there was some limit beyond which financial crime and fraud in the US would or could not cross, here comes the city of Harrisburg, bankrupt for nearly two years, proving everyone wrong as usual. Of course, if one is sinking, might as well take down as many as possible with it, because in the long-run, etc... right Keynesian fanatics?
Fresh from the SEC:
Washington, D.C., May 6, 2013 — The Securities and Exchange Commission today charged the City of Harrisburg, Pa., with securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to municipal bond investors was either incomplete or outdated.
An SEC investigation found that the misleading statements were made in the city’s budget report, annual and mid-year financial statements, and a State of the City address. This marks the first time that the SEC has charged a municipality for misleading statements made outside of its securities disclosure documents. Harrisburg has agreed to settle the charges.
The SEC found that Harrisburg failed to comply with requirements to provide certain ongoing financial information and audited financial statements for the benefit of investors holding hundreds of millions of dollars in bonds issued or guaranteed by the city. As a result of Harrisburg’s non-compliance from 2009 to 2011, investors had to seek out Harrisburg’s other public statements in order to obtain current information about the city’s finances. However, very little information about the city’s fiscal situation was publicly available elsewhere. Information that was accessible on the city’s website such as its 2009 budget, 2009 State of the City address, and 2009 mid-year fiscal report either misstated or failed to disclose critical information about Harrisburg’s financial condition and credit ratings.
The SEC separately issued a report today addressing the disclosure obligations of public officials and their potential liability under the federal securities laws for public statements made in the secondary market for municipal securities.
“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “Statements that are reasonably expected to reach the securities markets, even if not prepared for that purpose, cannot be materially misleading.”
Elaine C. Greenberg, Chief of the SEC’s Enforcement Division’s Municipal Securities and Public Pensions Unit, said, “A municipal issuer’s obligation to provide accurate and timely material information to investors is an ongoing one. Because of Harrisburg’s misrepresentations, secondary market investors made trading decisions based on inaccurate and stale information.”
According to the SEC’s order instituting settled administrative proceedings, Harrisburg is a near-bankrupt city under state receivership largely due to approximately $260 million in debt the city had guaranteed for upgrades and repairs to a municipal resource recovery facility owned by The Harrisburg Authority. As of March 15, 2013, Harrisburg has missed approximately $13.9 million in general obligation debt service payments.
According to the SEC’s order, Harrisburg had not submitted annual financial information or audited financial statements since submitting its 2007 Comprehensive Annual Financial Report (CAFR) to a Nationally Recognized Municipal Securities Information Repository (NRMSIR) in January 2009. Beginning in July 2009, Harrisburg was obligated to submit financial information and notices such as principal and interest payment delinquencies and changes in bond ratings to a central repository known as the Electronic Municipal Market Access (EMMA) system maintained by the Municipal Securities Rulemaking Board (MSRB). Harrisburg did not submit its 2008 CAFR to EMMA, instead erroneously submitting it to a former NRMSIR on March 2, 2010. Harrisburg did not submit its 2009 CAFR to EMMA until Aug. 6, 2012, and did not submit its 2010 CAFR to EMMA until Dec. 20, 2012. The city did not submit material event notices about its failure to submit annual financial information or its credit rating downgrades until March 29, 2011, after the SEC had commenced its investigation.
Therefore, the SEC’s order finds that at a time of increased interest in the Harrisburg’s financial health due to the deteriorating financial condition of The Harrisburg Authority, the city created a risk that investors could purchase or sell securities in the secondary market on the basis of incomplete and outdated information. For current information, investors had to review other public statements from the city about its fiscal situation. For example, Harrisburg’s 2009 budget and its accompanying transmittal letter were accessible on Harrisburg’s website. By the time the 2009 budget was passed, Harrisburg was aware of the Authority’s projected budget deficits and that Dauphin County was challenging a rate increase. As a result, the Authority was unlikely to have sufficient revenues to pay its 2009 debt service obligations. However, Harrisburg’s 2009 budget as adopted did not include funds for debt guarantee payments. The 2009 budget also misstated Harrisburg’s credit as being rated “Aaa” by Moody’s when in fact Moody’s had downgraded Harrisburg’s general obligation credit rating to Baa1 by December 2008.
According to the SEC’s order, another public statement available to investors on the city’s website was the annual State of the City address delivered on April 9, 2009. The address only discussed the municipal resource recovery facility as a situation that was an “additional challenge” and an “issue that can be resolved.” The address was misleading because it failed to mention that by this time, Harrisburg had already made $1.8 million in guarantee payments on the resource recovery facility bond debt. It also omitted the total amount of the debt that the city would likely have to repay from its general fund. By this time, Harrisburg knew that the Authority had failed to secure the requested rate increase, making it likely that Harrisburg would have to repay $260 million of the debt as guarantor.
According to the SEC’s order, Harrisburg’s 2009 mid-year fiscal report available on its website was designed to provide a snapshot of budget-to-actual figures at the middle of the year. However, the report did not reference any of the guarantee payments the city had made on the municipal resource recovery facility debt, which at this mid-year point totaled $2.3 million (7 percent of its general fund expenditures).
The SEC’s order requires Harrisburg to cease and desist from committing or causing violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The city neither admits nor denies the findings in the order. In the settlement, the SEC considered Harrisburg’s cooperation in the investigation and the various remedial measures implemented by the city to prevent further securities laws violations.
The SEC’s investigation was conducted by members of the Enforcement Division’s Municipal Securities and Public Pensions Unit including Senior Enforcement Counsel Yolanda Gonzalez and Assistant Director Ivonia K. Slade with assistance from Municipal Securities Specialist Jonathan D. Wilcox. The investigation was supervised by Unit Chief Elaine C. Greenberg and Deputy Chief Mark R. Zehner.
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Porn, insider trading Indians, Martha Stewart, retired CHIPS actor, Harrisburg...anything to avoid the heart of Wall Street.
Someone should get a statement on the event from Mr. Corzine.
Somone should figure which Obama bundler took a bath on Harrisurg debt
Why not charge the "investment bank" that floated their bonds for not doing proper due dilligance?
It’s just a good thing they are not paying attention to Comex, GS, JPM, Fannie, Freddie and Jon or there would really be problems.
NO Humans Living in Harrisburg?
Apparently there are no living humans in Harrisburg. The place must be polulated by robots or something else that can actually function like a human and create the illusion that living humans exist there. Otherwise, real, live people would have been named as having committed crimes. Or did I miss something?
Every once in a while, someone will mail me a single popcorn kernel that didn't pop. I'll get out a fresh kernel, tape it to a piece of paper and mail it back to them.
Orville Redenbacher
just wait til they put *your* city in jail
Free Harrisburg!
Because they have money and [financial] might makes right.
That's a good question- one that our local news (paper and television) have yet to uncover. They avoid asking that particular question like the plague. This all started with the ill-fated incinerator upgrade project so the city would stop getting fined by the EPA. The short answer was that it didn't work, the city owes millions for it, and is still getting fined as long as the incinerator is still in operation.
Our former mayor had his hands all over this, as did the city council because they had to approave of it, as did the county which decided to throw it's fair share in. Yet the company that designed the hunk of junk is off the hook for anything, as they stated that IT MAY NOT WORK PROPERLY ans thus absolved themselves of any wrongdoing.
Now the county is going after the city, and the city is going after the county, as far as the media is concerned, the issue is over. The only thing the SEC ruling will do is up our taxes some more without fixing anything. I would like to see the city government grind to a halt- all city services stop- and start taxing the government owned property (which is about half of the buildings in Harrisburg)!
But the thing is, this issue is still not getting anywhere, and hasn't been for the last 4-5 years.
the punch line is....guess who gets to pay the fine(s)?........
No kidding, Corzine should be doing time with Maddoff right now. Where is that guy anyway.
The thing is, they'll have to drop this investigation because it *will* lead straight to the heart of Wall Street. Harrisburg and other municipalities don't open a spreadsheet without Wall Street having a hand in the bowl somewhere.
I'm guessing that as soon as Harrisburg turns around ands says, "Yeah, but _______ advised us to represent our offering this way", the investigation is going to come to a screeching halt.
Check me, but I inferred that the "difficulty" was not in the prospectus of the original bond offering - which Wall Strret would have written - but in the statement of financial conditions ex post facto, annual report of the city. Wall Street doesn't write that. The city does.
Of course Goldman would have gotten an advanced copy of that and had all of their clients buy Goldman's Harrisburg paper. Reminds me of liars poker....Hey!!!! Who finally got the Harrisburg paper off of our books. You are one big swinging dick.
Corzine smiles.....
Right. As I was going to post independently but you beat me to the punch. To continue:
1) Eagan Jones (for downgrading US debt - that took the SEC all of ten minutes),
2) whoever the other MF Global (Pereguine Falcon (?) was. (The guy did explain it all in a suicide note),
3) most recent flash crash associated with the Tweeted rumor that there was a brawl in the West Wing and Obama had a nose bleed. About 20 agencies jumped on investigating that.
The pattern? If you are small and don't make contributions, the SEC will be all over you like stink on s&^t.
Yeah, what about Mythe Blasters lying under oath?
Seriously. When did Blythe appear under oath? I don't think she has but would welcome being corrected.
I am thinking that you are referring to a TV appearance about a year ago when she lied through her teeth about JPM's silver short. Hey!! It was just hedging for a client whose bullion they were holding.
ZH post a week or so back - unfortunately can't find it using the search mask
found it
http://www.zerohedge.com/news/2013-05-03/will-jpmorgans-enron-be-end-bly...
There has never been
a better time to
BUY CALIFORNIA BONDS!
http://www.buycaliforniabonds.com/
Hurry and call your broker today
before more industry leaves the state.
Credit Risk - Risk that the issuer is unable to pay scheduled principal and interest on a timely basis. To evaluate the credit quality of an issuer, examine its credit rating and review the Preliminary Official Statement of the offering, which contains detailed financial information of the issuer.
That "Credt Risk" disclaimer should go to prison...30 years minimum sentence...!! "examine it's credit rating"..?? COMICAL..!!
So the city will reimburse the SEC using insurance proceeds from insurance companies regulated by the SEC and kept liquid solely because of the Federal Reserve and Treasury who couldn't themselves exist without money-printing and taxpayer confiscation. Could they fit at least one more slacker fuck in this scheme? I'm tired of working too.
Harrisburg is a shit-hole, just like any other city that is broke and has high crime rates.
Is the US itself any different?
what an you get out of a Broke Donkey? How many more cities have similar fraud going on?
Ahhh.. The crooked SEC doing its job...
What a complete scam..
No porn? Must get to work to justify being on the payroll...
Hey, SEC...
Hows the Jon Corzine investigation going?
Harrisburg should just engage Goldman pay the extortion fee...and I am sure all charges will just disappear. Maybe they could get Bernanke on their board...and he could just print it out of trouble.
Selling the Governor's Palace could help pay some of that debt.
How about barring them from selling any financial product?
FUCKING LIARS
How about just beating the living shit out of them?
Somebody didn't pay the grease, or put out, or they are just too fugly to play with. Now hiring scapegoats.
So one part of the government found another part of the government lying?
Imagines of snake devouring itself.
But under Obama's democratic "self-rule", this is just us lying to ourselves. No harm, you see.
That is right blame the muncipality instead of the investment bankers, what a brilliant move by the bastards.
Meanwhile, no banker goes punished.
Put up toll boths to go in or out of the city with JP Morgue operators. Privatize the city jails and fill them with patriotsa. Set the child catchers lose. Make Harrisburg pay with sink holes. They are guilty for not helping to overthrow Wall Street.
Why sell bonds anyway.its just borrowing money that you don´t have for things you want right now..where you could save money for them and pay cash in the future...but I know that is not how politicians get elected...build now..pay later....now its never pay....
Been through some shitholes in my time.
This is one of 'em.
This is impossible, because companies have a profit motive, but our benevolent leaders are just serving the public without any profit motive.
Has anyone else noticed the pervasive use of the word Comprehensive lately?
Doesn't it appear to almost exclusively be used by governments, bureaucracies and corporations?
Don't these entities almost always subsequently claim ignorance and neither admit nor deny any knowledge or involvement in anything?
How often do these entities offer up some bottom feeding scapegoats for sacrifice in order to preserve the illusion of freedom, justice and the rule of law?
I'm coining a few new terms here on ZH for future use
Comprehensive Ignorance
Comprehensive Negligence
Comprehensive Incompetence
Comprehensive Complicity
Comprehensive Corruption
Comprehensive Criminals
Comprehensive Fraud
Comprehensive Treason
excellent post fb.
Contrary ot the headline, this is not a story about "charges" being made. It is a story of yet another settlement in which no actual wrongdoers are noted and the non-human entity "charged" admits no fault. Nothing to see here. move along.
Harrisburg fined by SEC, it can't pay. Harrisburg bailed out by Feds, Feds can't pay. Feds issue debt to bail out Harrisburg which can't pay its fine assessed by SEC. Uncle Ben prints money to buy debt issued by Feds to bail out Harrisburg to pay its fine assessed by the SEC. Fiscal policy and monetary policy unite!
Yeah, we're talking about MILLIONS of dollars here! This is obviously much worse than naked selling 400 tons of gold short in two days! Get you're fucking priorities in line!
Harrisburg,without State Capitol,another Detroit.
Not quite that bed yet, but getting there. Give it time, and it will be. The area is sustained by the shipping industry, so as long as there are big trucks moving freight on the highways of the east cost, Harrisburg will still have something to tax to death.