PLAYING THE MARKET

MARICOPA COUNTY CONTINUES TO STRUGGLE WITH A FINANCIAL CRISIS OF ITS OWN MAKING. WE ALREADY KNOW THAT TOP COUNTY OFFICIALS--NOTABLY THE BOARD OF SUPERVISORS--LIED TO TAXPAYERS ABOUT THE ENORMITY OF THE PROBLEM. NOW NEW TIMES HAS LEARNED THAT THE COUNTY AL

Bayless' company, in fact, had signed off on the Official Statement before it was presented to the board for a formal vote. So had Fred Rosenfeld of the Gust Rosenfeld law firm, the county's longtime bond counsel.

Rosenfeld steadfastly contends that there was nothing illegal about the Official Statement. However, Larry Given, president of Peacock, Hislop, Staley & Given, says it is now clear that the county's operating deficit should have been revealed to investors.

But Given and several others involved in the issue say no crime was committed, because they simply did not know about the debt at the time they drafted and approved the Official Statement.

"If we had known that we had that deficit, then we would have had to disclose it," says Rawles, who had been on the board for six months when the bond issue was approved. "[But] we didn't know it at the time."
Everyone involved in the bond transaction--at least, everyone who responded to New Times' inquiries--believes that nothing illegal was done. (Bruner, who resigned from the board earlier this year to run for Congress, could not be reached for comment. Paul Walker, his spokesman, said the candidate's schedule did not allow time for an interview.)

But other experts and attorneys say the county probably did break one of the commandments of federal securities law--full disclosure.

Generally, the Securities and Exchange Commission polices only private companies, snooping about for market shenanigans that might leave investors fleeced. They look for the Charles Keatings of the business world.

Most of the SEC's rules and regulations, in fact, do not even apply to governments that issue bonds.

"In general, municipal bonds are exempt from our regulations," says Thomas C. Newkirk, associate director of enforcement for the SEC. "They don't need to be registered with us. The [Official Statement] doesn't need to be run through us."
But one crucial SEC law does apply to governments--Rule 10 of the Securities Act of 1933.

It is the SEC's "antifraud" law, and it requires that the prospectus--or Official Statement--for a bond issue be complete and truthful.

"You can't make a material misstatement in connection with the purchase or sale of a security, and you can't omit to state things that are necessary to make the statements not misleading," Newkirk says.

In short, the Official Statement must tell the truth and the whole truth. It cannot lie about, or fail to disclose, any information that is "material."

"What is material has been defined by the Supreme Court as being something that would influence a reasonable investor in deciding whether to buy, sell or hold a particular security," Newkirk says.

Like, perhaps, tens of millions of dollars in debt?
"That could be something," Newkirk says. "I don't want to get involved in giving an opinion on a particular matter."
The Official Statement for Maricopa County's 1993 bond sale is a weighty and detailed document numbering almost 100 pages. It includes a raft of information that county staff and advisers apparently did consider "material."

It lists, for instance, population statistics, the number of hotel rooms in the county, the major employers and the amount of money tourists spend here each year.

The plethora of rosy information about the county's economic base presumably was included to assure investors that Maricopa County bonds were a warm, safe place to put their money.

But two potentially material facts were not included in the otherwise exhaustive document:

ù The bonds were being issued to cover short-term debt, not to immediately pay for capital-improvement projects, as stated.

ù The very reason the county needed to borrow the money for operating costs was its awful financial condition.

Fred Rosenfeld, the county's bond counsel, who signed off on the 1993 sale, would broach little discussion of whether the Official Statement was misleading or potentially fraudulent.

"I will not answer any question on materiality under any circumstances," Rosenfeld says. "That would not be helping the county at all if I did that. There is no one who can answer the question you are asking. . . . It would take a court to render that for you."
Rosenfeld did say that a statement summarizing the county's finances was attached to the Official Statement, and the statement provided full information on the county's financial condition. "I have been told that these deficits do appear in those financial statements," the county's bond counsel says.

(After a brief conversation, Rosenfeld insisted that he wanted the interview retroactively considered off the record. Told that that would not be an option, he ended the conversation.)

In fact, the county's financial statements did not reveal the deficit.
Misleading financial statements are among the reasons the county ended up in the mess that it is in, several county officials and advisers agree.

Even Larry Given, president of the financial-advice firm that approved the 1993 statement, now says that the financial information included in it was misleading.

"We were misled, and everybody else in the world was, also," Given says. "If the board can't figure it out, and I can't, how is anyone else supposed to figure it out?"
In defense of issuing the misleading Official Statement, Given and others involved in the sale resort to a circular argument: The county finance staff was lying to them about the financial problems; therefore, it was not fraudulent to include those lies in the Official Statement.

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