SEC charges the City of Victorville, CA and Others with Defrauding Municipal Bond Investors

The Securities and Exchange Commission (SEC) has charged the City of Victorville in California, City Manager Keith Metzler, the Southern California Logistics Airport Authority, and Kinsell, Newcomb & DeDios (KND) – the Airport Authority’s bond underwriter – with defrauding bond investors by falsely inflating the value of property tied to a municipal bond offering.

The bond offering was implemented to fund redevelopment projects, including the construction of airplane hangars at Victorville Airport. According to the SEC’s complaint, the principal amount of the bond offering was based on a $65 million valuation of the hangars proffered by Metzler and KND, even though the county assessor had already valued the hangars at less than half that amount. As a result, the Airport Authority raised more money from bond investors by using the inflated valuation, but the bond investors made their decisions to invest based on false and misleading information about the value of the security underlying their bonds.
Additionally, the SEC has alleged that Jeffrey Kinsell of KND had misappropriated almost $2.8 million of the bond proceeds after the original contractor hired to build the hangars was removed from the project, and KND Affiliates, LLC – another of Kinsell’s companies – stepped in to oversee the completion of the hangars. The $2.8 million was characterized as construction and management fees, but the Airport Authority never agreed to them, and the fees were hidden from auditors who reviewed KND Affiliates’ books and records.

The SEC is now seeking to disgorge the ill-gotten gains from the defendants and to impose financial penalties and permanent injunctions against the defendants.