David Webb, the ex-Illinois mayor of the city of Markham, has agreed to partially resolve fraud charges brought by the SEC accusing him of involvement in a $5.5M municipal bond scam. The regulator accused Webb of taking part in a pay-to-play scheme that involved a $75K bribe from a construction contractor. In return, Webb is accused of directing one of the city’s construction projects to the contractor. The alleged fraud involved a $5.5 muni bond offering that the city offered in 2012.
According to the Commission’s complaint, at a Markham council meeting that year, talks took place to authorize the $5.5M of general obligation bonds to help pay for certain city projects. It was during this conversation that an attendee spoke out saying she’d heard that the owner of a roller rink stood to “improperly benefit.” The owner of the rink was Markham’s city attorney at the time and the roller ring was one of the city projects involved. Webb, however, responded by saying “I don’t make deals” even though he purportedly had recently been paid the bribe to the construction contractor. The regulator claims that the pay-to-play scam involving the city’s Roesner Park development project was already in place.
The bond offering was approved.
The SEC contends that the $75K bribe by Webb should have been brought to the City Council’s attention, as well as to investors considering putting their money into the municipal bonds so that they understood the risks that they could be taking on. The regulator said that Webb violated the Securities Exchange Act of 1934 and Section 10(b) promulgated thereunder.
Now, to partially settle the case, the ex-mayor will be permanently enjoyed from making similar violations in the future. He is barred from further municipal bond offerings. Disgorgement and penalties have yet to be determined.
Muni Bond Fraud
Unfortunately, one would think that investing in municipal bonds would be a low risk bet, especially when the securities are backed by the government. Unfortunately, that is not always the case and muni bond fraud can occur. Examples of muni bond fraud in recent years have included banks manipulating the prices of municipal bond derivatives, brokerage firms not disclosing the risks involved and marketing the bonds to investors even though they are not appropriate for their investment portfolios, and municipalities offering misleading information and making omissions about the bond funds they are selling.
More Blog Posts:
Credit Suisse Resolves NY Regulator’s Forex Rigging Probe for $135M, Institutional Investor Securities Blog, November 15, 2017
SEC Orders Wells Fargo Advisors to Pay $3.5M Penalty, Institutional Investor Securities Blog, November 13, 2017
SEC Orders 235 LLCs to Produce Documents Related to Its Woodbridge Fraud Probe, Stockbroker Fraud Blog, November 5, 2017