SEC v. City of Rochester, NY, Rosiland Brooks-Harris, Capital Markets Advisors, LLC, et al. — U.S. Securities and Exchange Commission Litigation Release No. 26205, dated December 30, 2024.
The SEC settled litigation against the City of Rochester, NY, its former finance director, and a municipal advisor, Capital Markets Advisors, LLC (CMA), and two of its principals. The defendants allegedly misled investors in bond offering documents by using outdated financial statements and failing to disclose the school district's financial distress. Additionally, CMA and its principals failed to disclose material conflicts of interest to their municipal clients.
Imagine a city needed to borrow money by selling bonds. The city and its finance director used old financial reports and didn't mention that their school district was having money problems. A company that advised the city on these deals also didn't tell its clients that it had a conflict of interest because of how it was paid. The SEC stepped in, and the city, finance director, and the advisory company settled the case, agreeing to stop these practices and pay penalties.
Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.
The SEC announced that it has resolved all pending litigation in the action it filed on June 14, 2022, against the City of Rochester, NY, its former finance director Rosiland Brooks-Harris, and municipal advisor Capital Markets Advisors, LLC (CMA), and two of its principals, Richard Tortora and Richard Ganci. The SEC 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that, in 2019, the City, Brooks-Harris, CMA and Ganci misled investors with bond offering documents that included outdated financial statements for the Rochester City School District and did not indicate that the District was experiencing financial distress due to overspending on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 alleged that, in connection with the alleged bond offering conduct, the City and Brooks-Harris violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC alleged that, in connection with the alleged bond offering conduct, Ganci and CMA violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 15B(c)(1) of the Exchange Act, and MSRB Rules G-17 and G-42. The SEC’s Complaint separately 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. The SEC alleged that, by this conduct, the CMA Defendants violated Section 15B(c)(1) of the Exchange Act, MSRB Rules G-17, G-42 and G-44. On April 15, 2024, the Court found that the CMA Defendants violated those provisions in connection with their failure to disclose material conflicts. On October 16, 2024, the Court entered a final judgment by consent against the City and Brooks-Harris. The City, without admitting or denying the allegations in the Complaint, consented to the entry of the final judgment, which enjoined it from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Brooks-Harris, without admitting or denying the allegations, consented to the entry of the final judgment, which enjoined her from violating Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b- 5 thereunder. The 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. On December 26, 2024, the court entered a final judgment by consent against the CMA Defendants. 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 Section 15B(c)(1) of the Exchange Act and MSRB Rules G-17, G-42, and G-44, and (b) 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 violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC previously settled charges against former District CFO Everton Sewell who, without admitting or denying the allegations, agreed to a final judgment, which was entered on June 21, 2022, (a) enjoining him from future violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, (b) enjoining him 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, and (c) ordering him to pay a $25,000 penalty.
Named in this action: City of Rochester, NY, Rosiland Brooks-Harris, Capital Markets Advisors, LLC, Richard Ganci, Richard Tortora, Everton Sewell.