In the first such settlement ever agreed to by a U.S. city, Harrisburg, Pennsylvania's state capital, has agreed to settle Securities and Exchange Commission charges accusing the city of securities fraud for making "misleading public statements" as the cash-starved city's finances deteriorated in the late 2000s and debts piled up in the wake of a failed public incinerator project and other questionable borrowing.
The SEC says Harrisburg failed to provide the public documents required by cities that sell bonds, from 2009 to 2011. Under the settlement agreement, Harrisburg didn't admit it did anything wrong, and agreed to stop doing it. The city has cooperated with the investigation, Philadelphia-based SEC officials Elaine Greenberg and Mark D. Zehner said in a statement.
The deal comes as Harrisburg Mayor Linda Thompson and Controller Dan Miller prepare to square off in a Democratic primary election for the top City Hall job. (May 21). Thompson has generally supported state efforts to sell assets and force the city to pay its bondholders, while Miller has resisted. City activists who oppose the state takeover have said the city should share its losses with bondholders and try to reclaim fees from the advisers who approved its reckless borrowing during the administration of former Mayor Stephen Reed.
Mark Schwartz, the suburban Philadelphia lawyer who formerly represented City Council in resisting state control of city finances, called the SEC's action "underwhelming," blamed city officials, lawyers and other advisers for the city's financial collapse, condemned the failure of state and Obama Administration criminal prosecutors to take action, and asked, "Where is law enforcement?" David Unkovic, the city's former state-appointed receiver, who quit last year in sympathy with city officials who demanded investors and advisers share the pain, declined to comment.
SEC says Harrisburg was represented by lawyer Ivan Knauer in Pepper Hamilton's Washington, DC office.
To read the SEC documents:
Web version: http://www.sec.gov/news/press/2013/2013-82.htm