No Happy Trails For Victorville Tax Increment Bond Financing

For more than thirty years, I’ve driven by, but never stopped at, the Roy Rogers and Dale Evans Museum in Victorville, California.  The museum eventually relocated to Missouri but reportedly did not survive for long.  Despite this notable defection, Victorville has grown remarkably in the last three decades.  Unfortunately, it now finds itself accused of a variety of securities law violations.

Yesterday, the Securities and Exchange Commission filed this complaint alleging that the city, a city official, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios (the underwriter of the Airport Authority’s bonds) defrauded investors by inflating valuations of property securing an April 2008 municipal bond offering. The complaint is a good example of how the SEC uses emails to make its case – there are 25 mentions of emails in the complaint.  The SEC alleges that the property valuations were material to investors because the bond offerings involved tax increment bonds which it explains as follows:

Although fairly common in California, tax increment bonds are structured very differently than the more familiar general obligation bonds. Unlike general obligation bonds, tax increment bonds cannot rely on a municipality’s general taxing authority to secure and pay the obligation of the bonds. Instead, tax increment bonds are only secured, and their obligations can only be paid, by the “incremental” increase in property tax revenues resulting from an increase in the aggregate assessed value of the property within the relevant redevelopment area. The increased assessed value can result from appreciation in existing properties or new construction.

The complaint asks for injunctive relief, disgorgement and civil penalties. 

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