From The Bond Buyer
By Jack Casey
WASHINGTON – The Ramapo Local Development Corp. and three individuals facing Securities and Exchange Commission securities fraud charges are asking a federal judge to dismiss the SEC’s complaint, claiming, among other things, that no one was hurt.
The four defendants are separately responding to the SEC’s complaint filed on April 14 in the U.S. District Court for the Southern District of New York in Manhattan. They are each also asking for a jury trial.
The individuals are: Christopher St. Lawrence, supervisor and director of finance for the town, as well as president of the RLDC; Aaron Troodler, the former executive director of the RLDC; and Nathan Oberman, the town’s deputy finance director.
The town of Ramapo, N.Y., and town attorney Michael Klein were also named in the complaint, but have previously responded to the SEC, urging Judge Cathy Seibel to dismiss the charges.
The SEC alleges that Ramapo, the RLDC, and the four individuals fraudulently hid the town’s financial troubles in bond documents for 16 muni offerings made between September 2010 and September 2015. The commission charged the town and each of the defendants with either knowingly or negligently engaging in the fraud. St. Lawrence, Troodler, and Oberman were charged with aiding and abetting violations by the town and RLDC, while the RLDC was also charged with aiding and abetting the town’s violations.
While the RLDC, St. Lawrence, Troodler, and Oberman each said they relied on advice of outside professionals like lawyers, accountants, and auditors, several of them also said that the alleged fraud was linked to their reliance on other defendants named in the case. For example, Oberman, in his answer, said that he relied in good faith on advice from St. Lawrence and Klein.
The defendants also said the charges should be dismissed because the offerings haven’t harmed the SEC or investors.
“The complaint does not allege any loss by any investor on account of the purchase of any bonds, notes or obligations as alleged in the complaint,” said the RLDC through its lawyer. “All bonds, notes or other obligations coming due from the RLDC and from the town since the time alleged in the complaint or since have been fully and timely paid as required by their terms.”
The defendants also asserted several unique, individual defenses while making clear that they reserve the right to put forward more in the future and adopt defenses used by their co-defendants.
St. Lawrence says he is entitled to “absolute legislative immunity.” However his lawyer could not be reached to explain why that would be granted.
The RLDC and Troodler are alleging the SEC acted with “unclean hands” in its investigation before filing the complaint because it used an agent to make “illegal and surreptitious” recordings of attorney-client privileged communications and used that illegally obtained information in its investigation and preparation of the complaint. Both defendants also said they could not be held liable for aiding and abetting because they did not give “substantial assistance” to other defendants in any of the alleged activities.
The RLDC said that it cannot be held responsible for any misrepresentation or omission in connection with the town’s securities because it “did not prepare or participate in the drafting of any offering document employed by the town in offering its securities or otherwise participate in any such offering.”
Troodler, through his lawyer, argues the Constitution’s Tenth Amendment, which deals with state and federal government powers, bars the SEC from taking action against him. He also alleges the court lacks personal as well as subject matter jurisdiction over him. Troodler lives in Bala Cynwyd, Pa., near Philadelphia.
Other defenses put forward include that: the SEC complaint lacks specificity and evidence of the materiality of the alleged representations or omissions; the commission failed to state a claim; the statute of limitations precludes the charges; and the actions the SEC cites were carried out in good faith.
The SEC found that the town faced deficits ranging between $250,000 and $14 million from its fiscal year 2009 through its fiscal year 2014. But the defendants, through a series of fabricated receivables over that time period, were able to make it look like the fund actually had positive balances of between $1.4 million and $4.1 million, according to the commission.
The SEC alleges Ramapo’s actions stem from not only wanting its financial picture to look good, but from also trying to prevent further political fallout from a minor league baseball stadium project that did not have Ramapo citizens’ support. Fourteen of the sixteen offerings the SEC cited were issued by the town and the two others were issued by the RLDC, but were guaranteed by the town and related to the baseball stadium.
The SEC is seeking an unspecified amount of civil penalties and has asked the court to bar each of the individuals from the muni market.
The commission has also asked the court to require Ramapo and the RLDC to retain for five years a court-appointed independent consultant, an independent auditing firm acceptable to the commission staff, and, if either want to issue munis, an independent disclosure counsel also acceptable to the staff.
The U.S. District Attorney for the Southern District of New York, in a related action, successfully indicted St. Lawrence and Troodler on 22 counts of wire fraud, securities fraud, and conspiracy to commit securities fraud.
Originally published in The Bond Buyer www.bondbuyer.com