By STEVE BITTENBENDER
THE CENTER SQUARE CONTRIBUTOR
(The Center Square) – The Biden administration has taken the city of Rochester to court amid claims officials sold nearly $120 million in investment bonds for the city’s school district but failed to reveal financial problems plaguing the Western New York district.
In the case filed Tuesday in a New York federal court, the Securities and Exchange Commission accused the city, its former finance director Rosiland Brooks-Harris and ex-school district CFO Everton Sewell of misleading investors when $119 million in bonds were released three years ago.
According to the complaint, the city provided outdated financial statements for investors interested in buying the bonds. City officials also failed to disclose the district’s financial problems caused by teacher salaries.
Mr. Sewell also downplayed the district’s budget shortfall to a credit rating agency, even though he knew the deficit was reaching $25 million.
In September 2019, six weeks after the bonds were offered, a district audit uncovered spending that exceeded the budget by about $30 million. The report led to credit agencies downgrading the city’s credit rating, the layoff of more than 150 school employees and then-Superintendent Terry Dade’s sudden departure.
In April 2020, state lawmakers and Gov. Andrew Cuomo approved a 30-year, $35 million loan and required monitors to oversee the school district for three years.
“We allege that the Rochester City School District’s financial health was important to investors, who were counting on the district as the expected source of repayment,” said LeeAnn Ghazil Gaunt, the chief of the SEC’s Enforcement Division’s Public Finance Abuse Unit, in a statement. “As described in our complaint, these defendants failed to inform investors of the serious financial difficulties the district was experiencing at the time of the offering.”
Mr. Sewell, who stepped down in October 2019, has agreed to a settlement offer. While neither admitting nor denying the SEC’s allegations, he agreed to pay a $25,000 fine and be subject to a court order barring him from participating in future municipal investment offerings or violating SEC antifraud provisions. The agreement still must be approved by a federal judge.
In a statement to the Rochester Democrat & Chronicle, the city took issue with the SEC’s complaint. City officials told the paper that they “made it clear” that they aren’t responsible for the district’s finances.
The SEC also filed charges against Capital Market Advisors, the city’s advisory firm, and two officials from the firm for failing to disclose conflicts of interest to clients.