Reuters: Regulatory News: SEC opens inquiry into California's San Bernardino

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SEC opens inquiry into California's San Bernardino Oct 17th 2012, 16:03 By Tim Reid NEW YORK | Wed Oct 17, 2012 12:03pm EDT NEW YORK Oct 17 (Reuters) - The U.S. Securities and Exchange Commission has opened an inquiry into the financial affairs of San Bernardino, the southern California city that declared bankruptcy in August. The city, in an Oct. 11 letter from the SEC, was instructed not to destroy or alter financial documents and communications with bond issuers, underwriters and financial advisers. Robert H. Conrad, the Los Angeles-based SEC senior counsel who sent the letter, called the agency's action an "informal inquiry." He stated that the letter "should not be construed as an indication ... that any violation of the federal securities laws has occurred." San Bernardino's mayor, Patrick Morris, told Reuters on Wednesday that he believed the inquiry to be "routine." San Bernardino, a city of 209,000 about 60 miles east of Los Angeles, filed for Chapter 9 bankruptcy protection on Aug. 1, citing a $46 million budget shortfall. The SEC recently said it planned to step up oversight of cities and states' dealings with the $3.7 trillion municipal bond market. The SEC investigated the financial affairs of Miami in 2009, and of New Jersey and San Diego in 2010. New Jersey settled claims that it misled investors over the size of its unfunded pension obligations, and four officials in San Diego paid financial penalties as a result of an SEC municipal bond fraud probe. Among San Bernardino's creditors are holders of $46 million of pension obligation bonds issued by the city in October 2005. In July the city council voted to suspend debt payments including interest payments on those bonds. Wells Fargo Bank, trustee for the bonds, said this week that the city failed to make a $1 million interest payment due on that debt on Oct. 1. Andrea Travis Miller, San Bernardino's interim city manager, and her finance director Jason Simpson, said in July they had found slipshod accounting practices in the city, but no evidence of illegal activity. In a July council meeting, Penman accused city officials of falsifying 13 of the last 16 budgets to mask the scale of the city's financial troubles. Since then one council member has asked him to "put up or shut up." Penman told Reuters last week that he would not elaborate further on those accusations - but that he had also not retracted them. San Bernardino became the third Californian city to declare bankruptcy this year, following Stockton and Mammoth Lakes. Link this Share this Digg this Email Reprints

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