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City Securities paying $580,000 to settle SEC probe

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Indianapolis-based City Securities Corp. has agreed to pay nearly $580,000 to settle charges that it and a southern Indiana school district provided false information to bond investors.

The SEC says its investigation found that City and the West Clark Community Schools told investors in a $31 million offering in 2007 that the district had been providing annual financial information and notices required as part of prior bond offerings.

In fact, the district had not been providing the required notices for a 2005 bond offering, and City had not conducted due diligence to detect the false statement, the SEC alleged.

The SEC also charged that City Securities and Randy Ruhl, who headed the firm's public finance and municipal bond deparment, provided improper gifts to representatives of municipal bond issuers, and then wound up charging these and other expenses back to issuers under the guise of costs for “printing, preparation and distribution of official statements.”

City Securities CEO Mike Bosway told IBJ Monday afternoon that the the SEC uncovered the issues during a routine audit in 2010, and the company responded with “immediate and substantial” changes to prevent reoccurrence.

“We kind of viewed this as an opportunity to improve as a company and as industry professionals,” Bosway said. “Our cooperation in this matter has strengthened the company.”

Bosway said Ruhl, whose LinkedIn page Monday afternoon still listed him as a senior vice president, is no longer with City Securities.

Bosway said he could not discuss the SEC’s findings in detail but said no one else has left the company as a result of the investigation.

The SEC said Ruhl and West Clark Community Schools agreed to separate settlements. Ruhl's settlement requires him to pay $38,475, as well as accept a one-year ban from working in the securities industry and a permanent ban from working as a supervisor in the industry.

Ruhl, 56, had been with City Securities since joining the company as assistant vice president in 1988. From January 2007 to May 2010, he was responsible for supervising the public finance and municipal bond department, which has about 15 staff members spread between Indianapolis and Fort Wayne.

“This is the first time the SEC has charged a municipal issuer with falsely claiming in a bond offering’s official statement that it was fully compliant with the annual disclosure obligations it agreed to in prior offerings, and an underwriter and its principal for not doing the necessary research to attest to the truthfulness of that claim,” Andrew Ceresney, co-director of the SEC’s division of enforcement, said in an SEC statement.

Elaine Greenberg, chief of the enforcement for division’s municipal securities and public pension unit, added in the statement that: “City Securities abused its role” as municipal underwriter by using bond proceeds to reimburse itself for gifts.

In addition, the securities firm violated Municipal Securities Rulemaking Board rules by providing “valuable and excessive gifts,” such as multi-day golf trips and tickets to sporting events, Greenberg said.

The SEC's administrative complaint says that while City's compliance manual specifically cautioned employees that expenses reimbursed from bond proceeds must be reasonable and related to the municipal bond issuance, in practice the firm "fostered a long-standing and pervasive culture of lax supervision and loose internal controls as it related to expense reimbursement."

For example, the SEC says City was reimbursed for a $2,500 donation to a charity favored by an issuer, as well as for the cost of 12 Chicago White Sox tickets.

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  • Review
    I agree the deals done by the good old boys club need to be reviewed not only for the city but for all the school districts and other public entities they have done deals with in the past. Those are our tax dollars being squandered in the big picture.
  • SEC Link
    Here is the actual link to the SEC litigation in detail. http://www.sec.gov/litigation/admin/2013/33-9434.pdf
  • Sugar-coated reporting
    Thanks for those additions, RMR. It's disturbing that the reporter would omit those details from his story. It makes one wonder how City Securities has been billing all of the bond issues it handles for the City of Indianapolis.
  • A few more
    51. During the relevant time period, City Securities provided improper entertainment, gifts and gratuities to various municipal securities issuers. For example, City Securities authorized: a. Frequent and excessive gifts and gratuities to representatives of one school district within a four-month period in 2007, including approximately $1,500 in catering expenses for a lunch and an evening dinner reception at an event to celebrate the installation of a new superintendent; approximately $800 for travel expenses for a multi-day out-of-state golf trip, including airfare, car rental and meals; and another $140 for an overnight golf trip including hotel stays; b. Approximately $1,250 for a group outing to a Chicago Cubs baseball game for six issuer officials and their guests which was not attended by representatives from City Securities; and c. In excess of $200 for two issuer officials and their guests to attend a Notre Dame football game, which again was not attended by representatives from City Securities.
  • What was billed
    Here are additional sections copied from the SEC document. Absolute power corrupts absolutely? 44. For example, during the relevant time period, various Department employees requested, and Ruhl approved reimbursement from City Securities, for expenses relating to charitable donations, entertainment and travel. Examples include the following: a. Numerous reimbursements for mileage, hotels and entertainment relating to issuers; b. A donation of $2,500 to a charity favored by an issuer; c. A donation of $1,500 to an educational scholarship favored by an issuer; d. $1,000 to sponsor of a golf outing hosted by an issuer; e. $2,500 to sponsor an education foundation event hosted by an issuer which featured a “Colts Town Hall” breakfast with high profile professional football player s from the Indianapolis Colts; and f. Reimbursement for 12 Chicago White Sox tickets 45. City Securities later billed these expenses back to the issuers, mischaracterized as costs of “Printing, Preparation and Distribution of Official Statement.” Issuers were therefore unaware they were paying for expenses unrelated to the offering from bond proceeds. 47. In addition, City Securities, with Ruhl’ s knowledge and participation, regularly added purported “miscellaneous” expenses to issuers’ expense letters without requiring any documentation from its bankers, or providing any documentation to the issuers, to support those expenses. In at least two instances, City Securities added $10,000 in purported “miscellaneous” expenses to issuers’ expense letters, again categorizing the expenses as costs of “ Printing, Preparation and Distribution of Official Statement."

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