Word is Bond
By Alex Distefano
Federal regulators accuse a Victorville official and underwriter of scamming investors and lining their own pockets
Summer’s not quite here . . . but things are already heating up in the desert city of Victorville. As if dealing with a busted economy wasn’t difficult enough, the city was recently accused by the Securities & Exchange Commission (SEC) of allegedly defrauding investors of nearly $13 million dollars from a 2008 bond sale.
Federal officials accuse Victorville City Manager Keith Metzler and Carlsbad-based underwriting firm Kinsell, Newcomb & DeDios (KND) of inflating the value of property from the aforementioned bond sale. The Southern California Logistic Airport Authority—which Victorville controls—made the 2008 municipal bond offering. The SEC says Metzler and KND misled investors and
The SEC, which filed the lawsuit April 29 in the U.S District Court in Los Angeles, allege Metzler KND misled investors and scammed them, by inflating the value of four airport hangars at the Southern California Logistics Airport. The inflated value of the hangars was $65 million, but the actual value was less than half of that amount; $28 million. The hangars were eventually constructed with income raised by these debt securities based on the alleged inflated value, officials say.
Sam Puathasnanon, senior trial counsel for the SEC’s Los Angeles office, confirmed these allegations for the Weekly, but would not go into specific details regarding the investigation or complaints which led to the lawsuit being filed. Puathasnanon also said he could not comment on any possible criminal charges that could result from the investigation.
“With respect to criminal charges, we are a civil law enforcement agency, and cannot comment,” he says. “The FBI and U.S. Attorney’s offices would handle any criminal charges, if there are any,” Puathasnanon said. “By statute we’re not allowed to discuss any further details involving this investigation.”
Officials with the FBI and the U.S. Attorney did not respond to Weekly requests for interviews. City Manager Metzler, Victorville city officials and KND did not respond to the Weekly’s efforts to contact them for this story.
Puathasnanon told the IE Weekly that the defendants would have an opportunity to respond to the SEC complaint, such as filing a motion to dismiss it, which would trigger litigation.
“The judge will set the schedule as to when this will all be resolved,” he says. “We are still in the early stages of this lawsuit; there have been no rulings yet. How long this takes, will be all up to the court schedule.”
The SEC seeks permanent injunctions against Metzler and KND, Puathasnanon says. The SEC is also seeking a punitive damages claim as well, so the accused will have to repay the money with interest.
“At this time, the SEC cannot provide an exact dollar amount of the possible judgment. We don’t have that specific information,” Puathasnanon says.
KND also stands accused of collecting bond money in the form of a fraudulent “construction management fee” and an equally illegal “property management fee”—totaling more than $2.7 million—despite the fact that the company had no previous construction experience. According to the SEC, the firm essentially lined its own pockets with this money, which remains unaccounted for.
The SEC also claims that the inflated value—considered false information—made it impossible for potential investors to make informed decisions about the risk of buying the bonds. Such a move can be damaging to any city as it can affect it when it wants to borrow money or issue bonds.
Terree A. Bowers, an attorney representing Victorville and the airport authority, told The Fresno Bee, “We respectfully disagree with the SEC allegations as we understand them and we’ll vigorously fight the case.”