HomeMy WebLinkAboutMN-CC-2016-06-29COMMON COUNCIL PROCEEDINGS
CITY OF ITHACA, NEW YORK
Special Meeting 6:00 p.m. June 29, 2016
PRESENT:
Acting Mayor Mohlenhoff
Alderpersons (6) Murtagh, Nguyen, Gearhart Fleming, Kerslick, Smith
EXCUSED:
Alderpersons McGonigal, Brock, Smith, Martell
OTHERS PRESENT:
City Clerk — Conley Holcomb
City Attorney — Lavine
City Controller — Thayer
PLEDGE OF ALLEGIANCE:
Acting Mayor Mohlenhoff led all present in the Pledge of Allegiance to the American
Flag.
SPECIAL ORDER OF BUSINESS:
Motion to Enter into Executive Session to Discuss the Settlement of Pending
Litigation:
By Alderperson Smith: Seconded by Alderperson Kerslick
RESOLVED, That Common Council enter Executive Session to discuss the settlement
of pending litigation.
Carried Unanimously (7-0)
RECONVENE:
Common Council reconvened into Regular Session with no formal action taken.
Resolution Authorizing Offer of Settlement of Administrative Proceeding
By Alderperson Smith: Seconded by Alderperson Kerslick
RESOLVED: That Svante L. Myrick, the Mayor of this City, be and hereby is authorized
to act on behalf of the City, and in his sole discretion, to negotiate, approve, and make
the offer of settlement as attached hereto, to the United States Securities and Exchange
Commission ("Commission") in connection with the investigation conducted by the
Commission; in this connection, the aforementioned Svante L. Myrick be and hereby is
authorized to undertake such actions as he may deem necessary and advisable,
including the execution of such documentation as may be required by the Commission,
in order to carry out the foregoing.
Carried Unanimously (7-0)
UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No.
In the Matter of
CITY OF ITHACA,
NEW YORK,
Respondent.
OFFER OF SETTLEMENT
I.
City of Ithaca, New York ("Respondent"), pursuant to Rule 240(a) of the Rules of
Practice of the Securities and Exchange Commission ("Commission") [17 C.F.R. § 201.240(a)],
submits this Offer of Settlement ("Offer") in anticipation of cease -and -desist proceedings to be
instituted against it by the Commission, pursuant to Section 8A of the Securities Act of 1933
("Securities Act").
II.
This Offer is submitted solely for the purpose of settling these proceedings, with the
express understanding that it will not be used in any way in these or any other proceedings,
unless the Offer is accepted by the Commission. If the Offer is not accepted by the Commission,
the Offer is withdrawn without prejudice to Respondent and shall not become a part of the record
in these or any other proceedings, except that rejection of the Offer does not affect the continued
validity of the waivers pursuant to Rule 240(c)(5) of the Commission's Rules of Practice [17 C.F.R.
§ 201.240(c)(5)] with respect to any discussions concerning the rejection of the Offer.
On the basis of the foregoing, Respondent hereby:
A. Admits the jurisdiction of the Commission over it and over the matters set forth in
the Order Instituting Cease -and -Desist Proceedings Pursuant to Section 8A of the Securities Act of
1933, Making Findings, and Imposing Remedial Sanctions and a Cease -and -Desist Order
("Order");
B. Solely for the purpose of these proceedings and any other proceedings brought by or
on behalf of the Commission or in which the Commission is a party, prior to a hearing pursuant to
the Commission's Rules of Practice, 17 C.F.R. § 20 1. 100 et seg., and without admitting or denying
the findings contained in the Order, except as to the Commission's jurisdiction over it and the
subject matter of these proceedings, which are admitted, consents to the entry of an Order by the
Commission containing the following findings' set forth below:
Summary
1. This matter involves material misstatements by Respondent in the sale of
municipal securities. Specifically, in certain official statements for municipal securities,
Respondent affirmatively misstated that it had materially complied with prior agreements to
provide continuing disclosure. Respondent was an issuer responsible for making the continuing
disclosure and for the material misstatements in the official statements. As a result of the
conduct described herein, Respondent violated Section 17(a)(2) of the Securities Act.
2. The violations discussed in this Order were self -reported by Respondent to the
Commission pursuant to the Division of Enforcement's (the "Division") Municipalities
Continuing Disclosure Cooperation Initiative.2 Accordingly, this Order and Respondent's Offer
are based on information self -reported by the Respondent.
Respondent
3. Respondent, established in 1888, is located in the State of New York at the
southern tip of Cayuga Lake.
Prior Continuing Disclosure Agreements
4. Rule 15c2-12 of the Securities Exchange Act of 1934 ("Exchange Act") generally
prohibits any underwriter from purchasing or selling municipal securities unless it has reasonably
determined that the municipal issuer or other obligated persona has undertaken in a written
agreement to provide annual financial information and, if not included in the annual financial
information, audited financial statements when and if available, to the Municipal Securities
RutFBoard's ("MSRB") Electronic Municipal Market Access system ("EMMA" ).4 In
ad greement, sometimes referred to as a continuing disclosure agreement, must
inertaking by the municipal issuer or obligated person to provide timely notice of
in are made pursuant to Respondent's Offer of Settlement and are not binding on any
other person or entity in this or any other proceeding.
2 See Div. of Enforcement, U.S. Sec. & Exch. Comm'n, Municipalities Continuiniz Disclosure Cooperation
Initiative, http://www.sec.gov/divisions/enforce/municipalities-continuing-disclosure-cooperation-initiative.shtml
(last modified Nov. 13, 2014).
3 An "obligated person" generally means any person or entity that is committed by contract or other arrangement to
support payment of all or part of the obligations on the municipal securities being offered. See 17 C.F.R. §
240.15c2-12(0(10).
4 Previously, Rule 15c2-12 required such information to be provided to the appropriate nationally recognized
municipal securities information repositories. In December 2008, Rule 15c2-12 was amended to designate EMMA
as the central repository for ongoing disclosures by municipal issuers and obligated persons, effective July 1, 2009.
2
certain specified events pertaining to the municipal securities being offered and timely notice of
any failure to submit annual financial information on or before the date specified in the
continuing disclosure agreement.
5. In securities offerings which preceded the offerings at issue in this matter,
Respondent executed continuing disclosure agreements, for the benefit of investors in those
earlier offerings. In those agreements, Respondent agreed to, among other things, submit annual
financial information to the appropriate repositories within certain timeframes, as well as timely
notices of certain specified events pertaining to the municipal securities being offered.
Respondent agreed to submit notices in the event it was unable to provide the contractually
required annual reports. Respondent also agreed to provide audited annual financial statements
within certain timeframes.
6. Despite executing these continuing disclosure agreements, Respondent failed to
comply in all material respects with its commitment to provide certain types of continuing
disclosure within the timeframes set forth in the continuing disclosure agreements.
Misstatements About Compliance with Continuing
Disclosure Agreements in Subsequent Municipal Securities Offerings
7. After these material failures to comply with prior continuing disclosure
agreements, Respondent issued new municipal securities. As part of those new issuances,
Respondent again undertook to make continuing disclosure for the benefit of investors and
disseminated final official statements in connection with the new offerings.
8. jil§RTe facial statements for the new municipal securities, Respondent made
materially fal and mi Ileading statements about its prior compliance with its earlier continuing
disclosure aAMnents. s follows:
PL2011&Qmpetitive offering in which the final official statement read, in relevant
part: "[t]he City is in compliance with all prior undertakings pursuant to [Rule
15c2-12], except as follows: Prior to fiscal year ending December 31, 2003 the
Aty had not made yearly filings in regards to Continuing Disclosure. In 2003 the
City made all necessary filings and a Material Events notice was filed for failure
to file for the prior years. The City has fallen behind in the preparation of
Audited financial statements; see `Independent Audit' herein. As a result, the
City was not in full compliance with the filing requirements for fiscal year 2004
or 2005. For these years, portions of the annual update document were filed along
with the most recent official statements. The City has also filed a Material Events
notice for these years. The City is now up to date with all filings except the 2009
audit and the City has duly filed a notice as to this delay in accordance with
disclosure requirements. An additional filing will be completed once the audit for
year ending December 31, 2009 is completed" and "[t]he 2006 audit was overdue
as the City's Finance Department went without a Deputy Controller for 18 months
and fell behind on many of its financial reporting activities mainly in part due to
the heavy daily work volume and the need for more staff. The City has filled the
3
Deputy position, and has become current with all financial reporting." This was
misleading because Respondent filed its audited financial statements for the fiscal
years 2006, 2007, and 2008 late by approximately 16 months, 18 months, and 10
months, respectively, and filed its operating data for the fiscal years 2006, 2007,
and 2008 late by approximately six months in each case. Respondent also failed
to file required notices of late filings with respect to its audited financial
statements for the fiscal year 2006 and its operating data for the fiscal years 2006,
d 2008, and filed required notices of late filings with respect to its audited
nfdfo
statements for the fiscal years 2007 and 2008 approximately 16 months
mo
nths, respectively, after such audited financial statements were due;
PL2012#wnpetitive offering in which the final official statement read, in relevant
part: "[t]he City is in compliance with all prior undertakings pursuant to [Rule
15c2-12], except as follows: Prior to fiscal year ending December 31, 2003 the
Arty had not made yearly filings in regards to Continuing Disclosure. In 2003 the
City made all necessary filings and a Material Events notice was filed for failure
to file for the prior years. The City has fallen behind in the preparation of
Audited financial statements; see `Independent Audit' herein. As a result, the
City was not in full compliance with the filing requirements for fiscal year 2004
or 2005. For these years, portions of the annual update document were filed along
with the most recent official statements. The City has also filed a Material Events
notice for these years. The City is now up to date with all filings except the 2010
audit and the City has duly filed a notice as to this delay in accordance with
disclosure requirements. An additional filing will be completed once the audit for
year ending December 31, 2010 is completed" and "[t]he 2006 audit was overdue
as the City's Finance Department went without a Deputy Controller for 18 months
and fell behind on many of its financial reporting activities mainly in part due to
the heavy daily work volume and the need for more staff. The City has filled the
Deputy position, and has become current with all financial reporting." This was
misleading because Respondent filed its audited financial statements for the fiscal
years 2006 - 2009 late by approximately 16 months, 18 months, 10 months, and
eight months, respectively, and filed its operating data for the fiscal years 2006,
2007, and 2008 late by approximately six months in each case. Respondent also
failed to file required notices of late filings with respect to its audited financial
statements for the fiscal year 2006 and its operating data for the fiscal years 2006,
2007, and 2008, and filed required notices of late filings with respect to its audited
nth
statements for the fiscal years 2007, 2008, and 2009 approximately 16
our months, and one month, respectively, after such audited financial
s were due;
PL2012Aegotiated offering in which the final official statement read, in relevant
part: "[t]he City is in compliance with all prior undertakings pursuant to[Rule
15c2-12], except as follows: Prior to fiscal year ending December 31, 2003 the
Arty had not made yearly filings in regards to Continuing Disclosure. In 2003 the
City made all necessary filings and a Material Events notice was filed for failure
to file for the prior years. The City has fallen behind in the preparation of
2
Audited financial statements; see `Independent Audit' herein. As a result, the
City was not in full compliance with the filing requirements for fiscal year 2004
or 2005. For these years, portions of the annual update document were filed along
with the most recent official statements. The City has also filed a Material Events
notice for these years. The City is now up to date with all filings, as the 2010
audit was recently filed" and "[t]he 2006 audit was overdue as the City's Finance
Department went without a Deputy Controller for 18 months and fell behind on
many of its financial reporting activities mainly in part due to the heavy daily
work volume and the need for more staff. The City has filled the Deputy position,
and has become current with all financial reporting." This was misleading
because Respondent filed its audited financial statements for the fiscal years 2006
- 2010 late by approximately 16 months, 18 months, 10 months, eight months,
and three months, respectively, and filed its operating data for the fiscal years
2006, 2007, and 2008 late by approximately six months in each case. Respondent
also failed to file required notices of late filings with respect to its audited
financial statements for the fiscal year 2006 and its operating data for the fiscal
years 2006, 2007, and 2008, and filed required notices of late filings with respect
n'dited
ited financial statements for the fiscal years 2007 - 2010 approximately
s, four months, one month, and one month, respectively, after such
nancial statements were due; and
PLsecauL.2012 competitive offering in which the final official statement read, in
relevant part: "[t]he City is in compliance with all prior undertakings pursuant to
[Rule 15c2-12] for the past five years." This was false because Respondent filed
IR audited financial statements for the fiscal years 2006 - 2010 late by
approximately 16 months, 18 months, 10 months, eight months, and three months,
respectively, and filed its operating data for the fiscal years 2006, 2007, and 2008
late by approximately six months in each case. Respondent also failed to file
required notices of late filings with respect to its audited financial statements for
the fiscal year 2006 and its operating data for the fiscal years 2006, 2007, and
2008, and filed required notices of late filings with respect to its audited financial
statements for the fiscal years 2007 - 2010 approximately 16 months, four
months, one month, and one month, respectively, after such audited financial
statements were due.
9. Respondent knew or should have known that these statements were untrue.
Legal Discussion
10. Section 17(a)(2) of the Securities Act makes it unlawful "in the offer or sale of
any securities ... directly or indirectly ... to obtain money or property by means of any untrue
statement of a material fact or any omission to state a material fact necessary in order to make
the statements made, in light of the circumstances under which they were made, not misleading."
15 U.S.C. § 77q(a)(2) (2012). Negligence is sufficient to establish a violation of Section
17(a)(2). See Aaron v. SEC, 446 U.S. 680, 696-97 (1980). A misrepresentation or omission is
6
material if there is a substantial likelihood that a reasonable investor would consider it important
in making an investment decision. See Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988).
11. Rule 15c2-12 was adopted in an effort to improve the quality and timeliness of
disclosures to investors in municipal securities. In recognition of the fact that the disclosure of
sound financial information is critical to the integrity of not just the primary market, but also the
secondary markets for municipal securities, Rule 15c2-12 requires an underwriter to obtain a
written agreement, for the benefit of the holders of the securities, in which the issuer or obligated
person undertakes, among other things, to annually submit certain financial information. See 17
C.F.R. § 240.15c2-12(b)(5)(i); Municipal Securities Disclosure, Exchange Act Release No.
34961, 59 Fed. Reg. 59590, 59592 (Nov. 17, 1994).
12. In addition, it is important for investors and the market to know the scope of any
ongoing disclosure undertakings, and the type of information provided. See id. at 59594. Rule
15c2-12 therefore requires that undertakings provided pursuant to Rule 15c2-12 be described in
the final official statement. Moreover, critical to any evaluation of an undertaking to make
disclosures is the likelihood that the issuer or obligated person will abide by the undertaking.
See id. Therefore, Rule 15c2-12(f)(3) requires that a final official statement set forth any
instances in the previous five years in which an issuer of municipal securities, or obligated
person, failed to comply in all material respects with any previous continuing disclosure
undertakings. The requirements of Rule 15c2-12 allow underwriters, investors, and others to
assess the reliability of the disclosure representations. See id. at 59595.
13. As a result of the conduct described above, Respondent violated Section 17(a)(2)
of the Securities Act.
Cooperation
14. In determining to accept Respondent's offer, the Commission considered the
cooperation of Respondent in self -reporting the violations.
Undertakings
15. Respondent has undertaken to:
a. Within 180 days of the entry of this Order, establish appropriate
written policies and procedures and periodic training regarding continuing
disclosure obligations to effect compliance with the federal securities laws,
including the designation of an individual or officer at Respondent responsible for
ensuring compliance by Respondent with such policies and procedures and
responsible for implementing and maintaining a record (including attendance) of
such training.
b. Within 180 days of the entry of this Order, comply with existing
continuing disclosure undertakings, including updating past delinquent filings if
2
Respondent is not currently in compliance with its continuing disclosure
obligations.
C. For good cause shown, the Commission staff may extend any of
the procedural dates relating to these undertakings. Deadlines for procedural
dates shall be counted in calendar days, except that if the last day falls on a
weekend or federal holiday, the next business day shall be considered the last day.
d. Disclose in a clear and conspicuous fashion the terms of this
settlement in any final official statement for an offering by Respondent within
five years of the institution of these proceedings.
e. Certify, in writing, compliance with the undertakings set forth
above. The certification shall identify the undertakings, provide written evidence
of compliance in the form of a narrative, and be supported by exhibits sufficient
to demonstrate compliance. The Commission staff may make reasonable requests
for further evidence of compliance, and Respondent agrees to provide such
evidence. The certification and supporting material shall be submitted to LeeAnn
Ghazil Gaunt, Chief, Municipal Securities and Public Pensions Unit, Securities
and Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 02110-1424,
with a copy to the Office of Chief Counsel of the Division, no later than the one-
year anniversary of the institution of these proceedings.
f. Cooperate with any subsequent investigation by the Division
regarding the false statement(s) and/or material omission(s), including the roles of
individuals and/or other parties involved.
IV.
On the basis of the foregoing, Respondent hereby consents to the entry of an Order by the
Commission that:
A. Pursuant to Section 8A of the Securities Act, Respondent cease and desist from
committing or causing any violations and any future violations of Section 17(a)(2) of the
Securities Act.
B. Respondent shall comply with the undertakings enumerated in paragraphs 15(a)-
(e) of Section III, above.
V.
By submitting this Offer, Respondent hereby waives, subject to the acceptance of the offer,
the rights specified in Rule 240(c)(4) [17 C.F.R. § 201.240(c)(4)] of the Commission's Rules of
Practice. Specifically, Respondent waives:
(1) All hearings pursuant to the statutory provisions under which the proceeding is
to be or has been instituted;
7
(2) The filing of proposed findings of fact and conclusions of law;
(3) Proceedings before, and an initial decision by, a hearing officer;
(4) All post -hearing procedures; and
(5) Judicial Review by any court.
In addition, by submitting this offer, Respondent waives the rights specified in Rule
240(c)(5) [17 C.F.R. § 201.240(c)(5)] of the Commission's Rules of Practice. Specifically,
Respondent waives:
(1) Any and all provisions of the Commission's Rules of Practice or other
requirements of law that may be construed to prevent or disqualify any
member of the Commission's staff from participating in the preparation of, or
advising the Commission as to, any order, opinion, finding of fact, or
conclusion of law that may be entered pursuant to this Offer; and
(2) Any right to claim bias or prejudgment by the Commission based on the
consideration of or discussions concerning settlement of all or any part of this
proceeding.
Respondent also hereby waives service of the Order.
VI.
Respondent understands and agrees to comply with the terms of 17 C.F.R. § 202.5(e),
which provides in part that it is the Commission's policy "not to permit a defendant or
respondent to consent to a judgment or order that imposes a sanction while denying the
allegations in the complaint or order for proceedings," and "a refusal to admit the allegations is
equivalent to a denial, unless the defendant or respondent states that he neither admits nor denies
the allegations." As part of Respondent's agreement to comply with the terms of Section
202.5(e), Respondent: (i) will not take any action or make or permit to be made any public
statement denying, directly or indirectly, any finding in the Order or creating the impression that
the Order is without factual basis; (ii) will not make or permit to be made any public statement to
the effect that Respondent does not admit the findings of the Order, or that the Offer contains no
admission of the findings, without also stating that the Respondent does not deny the findings;
and (iii) upon the filing of this Offer of Settlement, Respondent hereby withdraws any papers
previously filed in this proceeding to the extent that they deny, directly or indirectly, any finding
in the Order. If Respondent breaches this agreement, the Division may petition the Commission
to vacate the Order and restore this proceeding to its active docket. Nothing in this provision
affects Respondent's: (i) testimonial obligations; or (ii) right to take legal or factual positions in
litigation or other legal proceedings in which the Commission is not a party.
VII.
Consistent with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any claim of
Double Jeopardy based upon the settlement of this proceeding, including the imposition of any
remedy or civil penalty herein.
VIII.
Respondent hereby waives any rights under the Equal Access to Justice Act, the Small
Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek
from the United States, or any agency, or any official of the United States acting in his or her
official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses,
or costs expended by Respondent to defend against this action. For these purposes, Respondent
agrees that Respondent is not the prevailing party in this action since the parties have reached a
good faith settlement.
IX.
Respondent states that it has read and understands the foregoing Offer, that this Offer is
made voluntarily, and that no promises, offers, threats, or inducements of any kind or nature
whatsoever have been made by the Commission or any member, officer, employee, agent, or
representative of the Commission in consideration of this Offer or otherwise to induce it to submit
to this Offer.
Day of , 2016
STATE OF
SS:
COUNTY OF
[Name]
[Title]
City of Ithaca, New York
The foregoing instrument was acknowledged before me this day of , 2016, by
, who is personally known to me or who has produced a driver's
license as identification and who did take an oath.
Notary Public
State of
Commission Number
Commission Expiration
0
ADJOURNMENT:
On a motion the meeting adjourned at 6:30 p.m.
Julie Conley Holcomb, CIVIC
City Clerk
Deborah Mohlenhoff
Acting Mayor