Rochester, New York, settles SEC case with no monetary penalty

The case has closed on the yearslong lawsuit leveled by the Securities and Exchange Commission at Rochester, New York, and its former finance director Rosiland Brooks-Harris after a federal District Court Judge in the Western District of New York passed down a final judgment with no monetary penalty and no financial monitor.

The city accepted the terms without admitting or denying the findings.

The former finance director, Brooks-Harris, has been permanently enjoined from participating in any issuance, purchase or sale of municipal securities, but aside from the forward looking injunctions, neither she nor the city received monetary penalties or monitorships in what counsel for the city are calling unprecedented for SEC litigation. 

"If it's happened before in this context where the SEC has brought a case, we haven't seen it," said Brian Feldman, partner at Aurelian Law, the city's external legal counsel in this case.

"We are supremely proud of this result, which changes what is possible in resolving cases like this with the SEC," he said. "This shows that, in the right case, the commission will approve a settlement — even in the middle of discovery — without requiring a monetary component or an independent consultant."

In 2022, the SEC charged Rochester, Brooks-Harris, and former Rochester City School District Chief Financial Officer Everton Sewell with misleading investors in a $119 million bond offering by providing outdated financial statements that did not indicate the City was experiencing at least a $25 million budget shortfall after overspending on teacher salaries.

Sewell quickly settled and agreed to an industry bar and a $25,000 fine.

Richard Tortora, Richard Ganci and their firm Capital Markets Advisors, the municipal advisors to the city were also charged with misleading investors and breaching their fiduciary duty by failing to disclose conflicts of interest in their contingent fee arrangements with the city. 

Chief Judge Elizabeth Wolford, the same judge in this case, ruled in favor of the commission, writing that "conflicts of interest arising from contingency fee arrangements based on the size or closing of the transaction are material conflicts of interest subject to mandatory disclosure."

The commission generally doesn't seek retribution against municipalities due to its negative impact on taxpayers. But Rochester officials are treating this as a win for the city, stressing that the Rochester City School District operates independently of the city's fiscal oversight.

"This precedent was worth fighting for, for city employees," said Mitch Gruber, councilmember and chair of Rochester CIty Council's Finance Committee.

"No city employee should face financial penalties for situations that are squarely out of their control," Gruber said.

"We are extremely pleased with this outcome," said Rochester Mayor Malik Evans.

"This completes a long legal argument that we felt confident in pursuing. I am especially proud that the city stood by its promise to protect its employees, regardless of whose administration they worked in."

"It is hard to imagine a better conclusion for this matter," said City of Rochester corporation counsel Patrick Beath. "The city was able to resolve this case with no financial penalties to any defendant and without needing to fund an ongoing monitor or consultant."