The Securities and Exchange Commission has leveled fraud charges against Sterlington, Louisiana, its former mayor, municipal advisor Twin Spires Financial and that firm's owner in the sale of $5.8 million of municipal bonds between 2017 and 2018.
The SEC alleged that Twin Spires and its owner Aaron Fletcher, along with the active participation and approval of then-Mayor Vern Breland, created and submitted false financial projections, “overstating the number of historical and projected sewer customers" to mislead the Louisiana State Bond Commission as to the town’s ability to cover the debt service, the SEC said.
Sterlington and Breland also did not disclose to investors that its SBC approval was based on false projections or that Breland misdirected more than $3 million from earlier bond offerings intended for sewer updates to pay for sports complex improvements, town legal fees and payroll, the SEC said.
“Investors in Sterlington’s bonds had a right to know that the town had obtained approval of the bond offerings based on false projections and had misused proceeds from prior offerings,” said LeeAnn Ghazil Gaunt, chief of the SEC’s Public Finance Abuse Unit. “Further, it is long past time for financial advisors to municipal issuers to comply with the requirement that they must be registered with the Commission before they provide municipal advice and we will vigorously pursue advisors who continue to flout those requirements.”
The town of Sterlington in 2015 set plans to upgrade its sewer system, and according to Louisiana state law, political subdivisions such as issuers must obtain written approval before issuing or selling bonds or other obligations.
Sterlington then entered into an agreement with Texas-based Twin Spires Financial to provide municipal advisory services, despite that firm not being registered with the SEC.
In 2017, Sterlington applied to the SBC for the approval of its Series 2017 $4 million utility revenue bonds, and in 2018, its Series 2018 $1.8 million wastewater, water and sewer treatment utilities revenue bonds. Both series were privately placed with investors.
The SEC generally doesn’t seek retribution against municipalities due its negative impact on taxpayers and the town of Sterlington has, without admitting or denying the findings, agreed to a cease and desist order against future violations.
There is still active litigation ongoing against Breland, who is litigating the SEC’s allegations against him. Twin Spires and Fletcher have consented to the entry of judgements enjoining them from future violations and agreed to pay disgorgement, pre-judgment interest and civil penalties in amount determined by the court.
The Public Finance Abuse Unit’s Robbie Mayer and Creighton Papier conducted the investigation under the supervision of Peter Diskin and Rebecca Olsen.
Litigation against Breland will be conducted by William Hicks and M. Graham Loomis of the SEC’s Atlanta Regional Office.
