VICTORVILLE, Calif. -- The U.S. Securities and Exchange Commission filed civil charges Monday against the city of Victorville, a city official and a local agency accusing them of misleading investors by inflating property values so they could issue municipal bonds five years ago.
The civil charges were filed against the city; Assistant City Manager Keith Metzler; the Southern California Logistics Airport Authority, which is controlled by Victorville and issued the bonds; and the bonds' underwriter.
The SEC alleges the city and others defrauded investors by overstating the values of properties in an area that it planned to redevelop. The bonds were secured by taxes on the properties.
The agency is seeking the return of ill-gotten gains.
“Financing redevelopment projects by selling municipal bonds based on inflated valuations violates the public trust as well as the antifraud provisions of the federal securities laws,” said George S. Canellos, co-director of the SEC's Division of Enforcement. “Public officials have the same obligation as corporate officials to tell the truth to their investors.”
The SEC's complaint says the airport authority sought to finance several redevelopment projects, including building four airplane hangars on a former Air Force base. The tax increment bonds were issued, but by April 2008 the airport authority was forced to refinance part of the debt incurred to build the hangars and other projects by issuing new bonds.
The principal amount of the new bonds was partly based on a $65 million valuation for the hangars. But the SEC alleges Metzler and the underwriter -- Kinsell, Newcomb & De Dios Inc., of Carlsbad -- knew the county assessor valued the hangars at less than half that amount.
The inflated figure allowed the airport authority to issue more bonds and raise more money than it otherwise would have, according to the SEC.
The complaint also said the underwriter misused more than $2.7 million of bond proceeds to keep itself afloat.
Terree Bowers, an attorney representing Victorville and the airport authority, said his clients dispute the allegations.
“We respectfully disagree with the SEC allegations as we understand them and we'll vigorously fight the case,” Bowers said.
A phone message left for Metzler's lawyer, James Kramer, was not immediately returned.