SEC Probes Finances in Bankrupt San Bernardino, Calif.

Tuesday, 16 Oct 2012 09:28 PM

 

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The U.S. Securities and Exchange Commission is probing fiscal practices in San Bernardino, according to a letter an SEC lawyer sent to the third California city to seek bankruptcy protection this year.

The nature of the inquiry wasn’t disclosed in the Oct. 11 letter from Robert H. Conrrad, a Los Angeles-based senior enforcement counsel at the agency, according to a copy from City Attorney James Penman. It calls on local officials to preserve records of securities offerings and communications with underwriters, fiscal advisers and credit ratings companies.

San Bernardino, a city of 209,000 about 60 miles (100 kilometers) east of Los Angeles, sought Chapter 9 court protection Aug. 1. In July, the San Bernardino County Sheriff’s Department said it had begun looking into possible criminal activity in City Hall several months earlier.

“There are a lot of areas that need to be covered by the SEC,” Penman said today by telephone. “The city attorney and the City Council are pleased that they’re coming in to look at things.”

Judith Burns, an SEC spokeswoman in Washington, declined to confirm the probe or provide any details.

Budget Maneuvers

San Bernardino relied on a variety of budgetary maneuvers to stay solvent, such as redirecting money from restricted accounts, Andrea Travis-Miller, the interim city manager, said in a July interview. None appeared illegal, she said then.

The SEC inquiry is “fine,” Mayor Patrick Morris said by telephone. Morris, a former judge in criminal and family courts, said he’s unaware of criminal conduct involving city finances.

“As a trial jurist, I never want to predict,” Morris said. “I know of nothing.”

Stockton, the largest U.S. city in bankruptcy, as well as San Bernardino and Mammoth Lakes have entered court protection from creditors. Stockton and San Bernardino cited downturns in tax revenue related to the housing-market collapse as well as higher employee costs, while Mammoth Lakes pointed to a court judgment involving a developer.

San Bernardino failed to make a $1 million interest payment due Oct. 1 on 2005 taxable pension bonds, according to a Municipal Securities Rulemaking Board filing today by Wells Fargo Bank, trustee for the debt.

The city has about $90 million of outstanding bond debts, according to budget documents, and another $200 million owed to holders of securities issued by the city’s now-dissolved redevelopment agency.

The San Bernardino council voted in July to skip payments of $3.4 million to holders of pension debt as well as $2.2 million owed for retiree health care.

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