Tuesday, May 23, 2017

Town supervisor convicted in muni bonds fraud case

By Amanda Maine, J.D.

The former town supervisor of Ramapo, New York, has been found guilty by a jury of 20 counts of conspiracy, securities fraud, and wire fraud, the U.S. Attorney’s Office for the Southern District of New York announced. The charges related to a cover-up of Ramapo’s deteriorating financial condition in the issuance of municipal bonds, including the costs of building a minor league baseball stadium. It is the first conviction for securities fraud in connection with a municipal bond offering (U.S. v. St. Lawrence, May 19, 2017).

General Fund misrepresentations. According to the indictment, former Town Supervisor Christopher St. Lawrence made up false assets in Ramapo’s General Fund, which is the town’s primary operating fund. The amount of these false assets was included in bond issues made pursuant to placement memoranda describing Ramapo’s finances. One of the bond issues related to the construction of a $58 million minor league baseball stadium. The town of Ramapo ended up financing half the cost of the stadium, even after a town-wide referendum overwhelmingly rejected a resolution to guarantee long-term bonds to finance the stadium.

The town also issued several million dollars in public improvement refunding bonds and bond anticipation notes. All of these issuances were made pursuant to statements containing false information about the town’s assets. The false assets included several fake receivables which served to inflate the balance of the General Fund, partly to conceal the extent to which Ramapo financed the stadium and the impact of the financing, and partly to conceal the illiquidity of the Ramapo Local Development Corporation (RLDC), which was authorized to issue bonds to the public. St. Lawrence also allegedly inflated a receivable from FEMA to reimburse the town for expenses related to Hurricane Irene and Hurricane Sandy, even though Ramapo had not submitted the claims to FEMA at the time.

Ramapo also allegedly transferred revenues from an ambulance fund to the General Fund, and the town’s financial statements failed to include accounts payable to a civil engineer. According to the indictment, St. Lawrence made false and misleading statements to the town and its auditors and conspired with other town officials to cover up the misrepresentations.

Guilty verdict. The 11 counts of wire fraud and eight counts of securities fraud for which St. Lawrence was found guilty each carry a maximum sentence of 20 years in prison. The guilty verdict of conspiracy carries a maximum sentence of five years in prison. St. Lawrence was acquitted of one count of securities fraud and one count of wire fraud.

Other litigation. In March, the former director of RLDC pleaded guilty to securities fraud and conspiracy charges. The town’s audit firm and senior engagement partner settled charges with the SEC relating to improper professional conduct in issuing the audit reports while ignoring red flags and relying on false representations by Ramapo officials about the inflation of the General Fund.

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