ORIGINALLY PUBLISHED BY SOURCEMEDIA
WASHINGTON – The Securities and Exchange Commission’s fraud case against the Town of Ramapo, N.Y., has concluded with a $327,000 penalty and lifetime ban from the muni market for the town’s former Town Supervisor, Christopher St. Lawrence.The SEC announced the end of the litigation Thursday following the decision by Judge Cathy Seibel of the U.S. District Court for the Southern District of New York in Manhattan Oct. 22. The abnormally stiff civil penalty and ban on muni deal participation against St. Lawrence ends a nearly three-year saga that began when the SEC charged him, the town, its local development corporation, and three other town officials.
The officials cooked the books of the town’s primary operating fund to show positive balances of between $1.4 million and $4.2 million during six years when Ramapo actually had accumulated deficits as high as almost $14 million, the SEC said. The fraud was an effort to conceal the financial strain caused by the roughly $60 million cost of building a baseball stadium as well as the town’s declining sales and property tax revenues.
St. Lawrence was alleged by the SEC to be the key participant in the scheme, serving as president of the Ramapo Local Development Corp. as well as town supervisor. According to the SEC’s complaint, inflated general fund balances were used in offering materials for 16 municipal bond offerings by Ramapo or the RLDC to investors. After St. Lawrence purposely misled a credit rating agency about the town’s general fund balance before certain bonds were rated, the SEC said, he told other town officials to refinance the short-term debt as fast as possible because “we’re going to all have to be magicians” to realize the purported financial results.
The other men charged were N. Aaron Troodler, assistant town attorney and former executive director of the Ramapo Local Development Corp.; Nathan Oberman, deputy finance director; and Michael Klein, town attorney. All three previously settled with the SEC, receiving lifetime muni offering bans. Klein and Oberman, both of whom neither admitted nor denied the SEC’s accusations, were ordered to pay $25,000 and $10,000 in civil penalties and to resign and be barred from employment with Ramapo for seven and five years, respectively.
Troodler previously pleaded guilty to criminal charges in a parallel criminal case brought by the U.S. Attorney’s Office for the Southern District of New York. He avoided jail time but was ordered to pay a $20,000 fine and lost his license to practice law. St. Lawrence is currently serving a 30-month prison term for which he surrendered in March after being convicted in the criminal case. He was also ordered to pay a $75,000 fine in that case.
The use of bars from future participation in municipal securities offerings is a relatively recent development in SEC enforcement, first deployed in a June 2014 complaint against the City of Harvey, Illinois, and its then-Comptroller Joseph Letke.
Securities lawyers have noted an increasing willingness by the commission and by courts to harshly penalize public officials, though the one doled out to St. Lawrence is unusually high. A federal Judge in Miami in 2016 refused to grant the SEC’s request for a $450,000 penalty against former Miami budget director Michael Boudreaux, ordering him to instead pay $15,000 for not disclosing the city’s true financial picture in connection with three bond issues in 2009.
Robert Doty, president and proprietor of muni bond litigation consulting firm AGFS said harsh penalties, like the St. Lawrence one, are a signal that public officials shouldn’t expect to get off lightly if found to be bad actors.
“Public officials can expect to be heavily penalized if they are caught participating in adverse behavior,” Doty said.
In court documents Judge Seibel noted that St. Lawrence did not personally profit from the scheme and was already saddled with penalties from the criminal case. But, Seibel continued, his fraud was “recurrent and egregious” and he “betrayed the public trust.”