The City of Rochester has settled a lawsuit with the Securities and Exchange Commission. The lawsuit against the city and former Treasurer Rosalind Brooks-Harris has now concluded.
In 2022, the SEC charged the city with Brooks Harris and Everton Sewell, former chief financial officer of the Rochester City School District, for misleading investors in a $119 million bond issue. The lawsuit also charges the City of Rochester’s City Counsel Capital Market Advisors LLC, its principal Richard Ganci, and co-principal Richard Tortola.
According to SEC documents, in 2019, the defendants issued a bond offering document that included outdated financial statements for RCSD, misleading investors and not showing that the district was in financial trouble due to overspending on teacher salaries. He claimed that there was no such thing.
“We maintain that the financial health of the Rochester City School District was important to our investors, who were looking to the District as a source of expected repayments,” said the head of the Enforcement Division’s Financial Abuse Unit. Leanne Gadgil Gaunt said in April 2022. As stated in our complaint, these defendants failed to notify investors of the severe financial difficulties the school district was experiencing at the time of the offering. ”
When the charges were announced in 2022, the SEC issued a court order barring Mr. Sewell from future violations of anti-fraud provisions and from participating in future municipal securities offerings, without admitting or denying any findings. They announced that they had agreed to settle the matter. He was also asked to pay a $25,000 fine.
The settlement, which was upheld today by U.S. District Judge Elizabeth Wolford for the Western District of New York, requires no monetary payments or oversight, city officials said. The city and Brooks Harris only agreed to a forward-looking injunction, the city said.
As far as the city and its outside counsel are aware, all local cases resolved by the SEC to date have required the payment of civil penalties, the deployment of expensive monitors, or both. These terms are not required as part of this settlement.
“We are very pleased with the results,” said Mayor Malik Evans. “This completes the lengthy legal discussions that we have confidently pursued. I am particularly pleased that the city has kept its promise to protect its employees, regardless of what administration they work for. I’m proud of that.”
This resolution is a victory for the city. RSCD often emphasizes that it operates independently of city financial oversight. Although the city has committed to a mandatory budget each year and is legally obligated to issue debt on behalf of RCSD, the district is a separate legal entity and municipality, officials said.
“For city officials, this precedent was worth fighting for,” said Councilman Mitch Gruber, chairman of the City Council Finance Committee. “City employees should not be fined for situations that are totally out of their control.”
“This is a very positive outcome of the city’s focused and consistent approach to this case,” says Brian Feldman, a partner at Aurelian Law Firm, the city’s outside counsel in the SEC litigation. “Such favorable conditions appear to be unprecedented.”
As part of the settlement, the city did not admit or deny the SEC’s allegations, officials said.
In April, a U.S. district court granted the SEC’s partial summary judgment against CMA, Gansi, and Tortola. The court found that the defendants breached their fiduciary duties to their municipal customers and violated the rules of the Municipal Securities Rulemaking Board. The order granting summary judgment resolves the SEC’s claims against Tortora.
Smriti Jacob is editor-in-chief of the Rochester Beacon. The Beacon welcomes comments and letters from readers, subject to our comment policy, which includes the use of full real names. Please send your contributions to the Letters page to: [email protected].
