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Victorville's costs mount as SEC probe continues
• 27 — Months since the SEC first subpoenaed city records and testimony
• $700,000 — Victorville’s legal fees due to investigation
• $300,000 to $500,000 — City’s cost in staff time to respond to SEC requests
• 740,000 — Pages Victorville has turned over to the federal agency
• $480 million — Victorville’s total bond debt, a focus of the probe
• 2007 — Year of bond issue SEC has zoned in on
• 5 — Years for the SEC’s statute of limitations
VICTORVILLE • It's been more than two years since the Securities and Exchange Commission first subpoenaed Victorville, requesting documentation on how the city has spent $480 million in bond funds over the last decade.
Victorville has now turned over more than 740,000 pages of records and spent more than $1 million in legal fees and staff time responding to the SEC’s probe, City Manager Doug Robertson said, with staff working on the latest request from the federal agency now.
“This has been a Herculean effort by city staff just to respond,” Robertson said via email. “We have not hired consultants to compile, process or number the documents. And we have had no reimbursement from the federal government for our time or legal costs.”
The SEC’s investigation has been heavily focused on the way Victorville used a series of bonds issued in 2007 and 2008 through Southern California Logistics Airport Authority, a city-run agency that controls former George Air Force Base.
The majority of the bond funds were used to make improvements at the airport. However, at least a quarter of SCLAA’s total $330 million bond debt funded projects off airport property, including development of the La Mesa/Nisqualli interchange, land for an abandoned city library and work on the shelved Victorville 2 power plant.
Victorville spent $50 million from a 2007 SCLAA bond series to put a down-payment on equipment for the VV2 plant, for example. However, the city defaulted on its payments and was forced to forfeit the deposit and equipment in 2010.
The SEC won a lawsuit in the spring requiring Thomas Barnett, head consultant on the VV2 project through the firm Inland Energy, to turn over his personal bank records as part of the agency’s investigation into the city. The SEC stated in the suit that investigators believes Barnett had a secret and improper relationship with Kinsell, Newcomb & De Dios, the brokerage firm that issued the SCLAA bonds — a claim that firm denies.
Most of the SEC’s requests are for documents related to particular city projects or consultants who’ve worked on those projects, Robertson said.
“With more than 15 department/division heads having left the city over the last five years,” he said, “they are no longer here to be able to review and pull their files, so other staff must do this.”
Another challenge has been the SEC’s request for every copy of every document, Robertson explained.
“So if a memo or email went to 10 people, they want all 10 copies and any other copies that may have been made,” he said. “As you can imagine, in a large organization such as ours, memos that went to all department heads could have 15-17 copies or more. If those department heads also sent it to their subordinates, there could be a hundreds of copies that we must track down for a complete response.”
The SEC’s investigation also started in the middle of the San Bernardino County Grand Jury’s three-year probe into city finances. That citizen group issued its report on June 29, heavily criticizing Victorville for its handling of bond funds and risky energy ventures.
Between the two investigations, Robertson said Victorville staff has been processing “extraordinary document requests on top of their regular duties for three years now.”
The SEC generally has a five-year statute of limitations on claims it investigates, according to information posted at SEC.gov. Any “action, suit or proceeding for the enforcement of any civil fine, penalty or forfeiture” has to start within five years, the website states. Otherwise, the agency has to ask the party it’s investigating to sign a tolling agreement, waiving the statute of limitations as the investigation continues.
Because the SEC has characterized its probe as a “non-public inquiry” — and because the City Council has been discussing the matter in closed session, since it may lead to litigation — Robertson declined to say whether the agency has asked Victorville to sign any tolling agreements to date. Judith Burns, spokeswoman for the SEC, also declined to comment, stating the agency doesn’t confirm or deny whether it’s even conducting an investigation “unless or until” it’s bringing action against a party.
However, if the SEC doesn’t have a tolling agreement with Victorville in place, the agency may soon be forced to drop any action related to the 2007 bond — or quickly release its findings.
If the city is found to be in violation of federal securities law, the SEC can issue injunctions and bring other civil enforcement actions. If the regulatory agency uncovers what it believes could be evidence of criminal activity, it will refer the case to a law enforcement agency such as the FBI.
The SEC’s latest request is being compiled by staff and reviewed by the city attorney’s office now, with Robertson stating they’re all anxious for the process to come to an end.
Brooke Edwards Staggs may be reached at (760) 955-5358 or at BEdwards@VVDailyPress.com.
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