The Securities and Exchange Commission charged a municipal bond issuer for only the second time on Wednesday. SEC alleged California's largest agricultural water district of overstating its financial health when it sold bonds.
According to Business Insurance, the Westlands Water District that operates in Fresno and Kings counties in central California, agreed to settle on a penalty. The agricultural water district agreed to pay a record $125,000 fine to settle SEC civil charges over its $77 million bond sale in October 2012.
SEC said that there were two individuals involved with the settlement of the related charges. The district's general manager, Thomas Birmingham of Sacramento, will shell off $50,000 penalty, while former assistant general manager, Louie Ciapponi of Fresno, will pay $25,000.
Reuters noted that, SEC Chair Mary Jo White has prioritized her duty of ensuring that rules are followed in the municipal securities, which are frequently bought by older investors, including retirees. The SEC accused Westlands Water District of fallaciously representing in bond offering materials that its debt service coverage ratio.
The coverage ration of the revenue to debt service payments had exceeded to 1.25 up to 1 in each of the last five years. SEC said that Westlands had discovered that in 2010, the company would have a hard time keeping up with the coverage ratio due to the drought conditions. With that, they decided to reclassify $9.8 million of reserves as revenue to meet the ratio, to evade raising rates for clients.
In a statement via ST. LOUIS POST-DISPATCH, Westlands said that the defendants "determined that entering into the settlement to fully resolve the matter was in the district's best interest." It went on to claim that it "has not missed any payment required to repay the 2012 bonds."
However, SEC stated that for the reclassifications, and separate undisclosed adjustments made in 2012, the agricultural water district's debt coverage ratio for 2010 would have been 0.11, not 1.25. The undisclosed accounting transactions "benefited customers but left investors in the dark about Westlands Water District's true financial condition," Andrew Ceresney, director of the SEC enforcement division, revealed in a statement.
Meanwhile, none of the defendants admitted any wrongdoing. Neither Westlands nor a lawyer of the defendants immediately responded to the requests for comment regarding the settlement of the related penalty.
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