The SEC announced that it has resolved all pending litigation in the action it filed in the US District Court for the Western District of New York on June 14, 2022 against a New York-based municipal advisor, Capital Markets Advisors, LLC (CMA), two of CMA’s principals (Richard Tortora and Richard Ganci), the City of Rochester, NY, and the city’s former finance director Rosiland Brooks-Harris.

In its complaint, the SEC had alleged that, in 2019, the city, Brooks-Harris, CMA and Ganci misled investors with bond offering documents that included outdated financial statements for the Rochester City School District and did not indicate that the district was experiencing financial distress due to overspending on teacher salaries.

The SEC’s complaint also alleged that the CMA defendants failed to disclose to nearly 200 municipal clients that CMA had material conflicts of interest arising from its compensation arrangements.

Rule violations & injunctions

The SEC alleged that, in connection with the alleged bond offering conduct, the city and Brooks-Harris violated SEC Rule 10b-5, which prohibits the use of manipulative or deceptive devices in the purchase or sale of securities. The SEC alleged that, in connection with the alleged bond offering conduct, Ganci and CMA violated SEC Rule 10b-5 and MSRB Rules G-17 (requiring muni dealers and advisers deal fairly with all parties) and G-42 (requiring muni advisers to disclose material conflicts of interest).

As for the city of Rochester, it was found in violation of SEC Rule 10b-5. Brooks-Harris, without admitting or denying the allegations, consented to the entry of the final judgment, enjoining her from violating SEC Rule 10b-5.

The federal court also entered a conduct-based injunction against Brooks-Harris, enjoining her from participating in any issuance, purchase, offer, or sale of municipal securities, and participating in the preparation of any offering materials with respect to municipal securities among other things.

The CMA defendants, without admitting or denying the allegations in the complaint, consented to the entry of the final judgment which: (a) enjoined them from future violations of MSRB Rules G-17, G-42, and G-44 (requiring municipal advisors to implement, and maintain a system to supervise the municipal advisory activities of the municipal advisor and its associated persons).

Civil monetary penalties

The court ordered civil penalties of $175,000 as to CMA, $30,000 as to Ganci, and $30,000 as to Tortora. As part of the settlement, the SEC dismissed its claims against CMA and Ganci for the violations of SEC Rule 10b-5.

The SEC’s complaint is listed under the title Securities and Exchange Commission of Rochester, New York, Rosiland Brooks-Harris, Capital Markets Advisors, LLC, Richard Ganci, and Richard Tortora, No. 22-cv-6273 (W.D.N.Y. filed June 14, 2022).