SEC settles charges of unregistered activities on behalf of municipal advisor

The Securities and Exchange Commission Tuesday announced that it has settled charges against two California firms and an individual accused of acting as unregistered municipal advisors or benefiting from those actions.

The SEC settled with Dale Scott & Co. Inc., a registered municipal advisor based in San Francisco, and also with Wayne Oetken and consulting firm School Services of California Inc. The SEC said Oetken and School Services each acted as unregistered solicitor municipal advisors in seeking new municipal securities clients on behalf of Dale Scott & Co.

Bloomberg News

The SEC found that Oetken and School Services violated Section 15B(a)(1)(B) of the Securities Exchange Act of 1934, which requires registration of solicitor municipal advisors, and that Dale Scott & Co. was a cause of those violations.

Oetken and School Services each agreed to pay penalties of $10,000, and Dale Scott & Co. agreed to pay a penalty of $25,000. All agreed to cease and desist from future violations. The orders stipulate that none of the parties admitted or denied wrongdoing.

"Dale Scott & Co is happy to have this matter behind it, so the firm can continue to focus its efforts on servicing its clients' needs," said its attorney, Kevin Harnisch of Norton Rose Fulbright US LLP.

School Services of California supplies consulting services and information to California school districts.

“School Services and DSC entered into a contract pursuant to which School Services would, among other things, solicit new municipal advisory clients on behalf of DSC,” the SEC said in its cease-and-desist order for School Services of California.

“School Services’ consulting business with California school districts provided it with the name recognition and contacts that would be valuable in soliciting new school district clients for DSC,” the SEC said.

"The case involved a very technical registration violation by people who are no longer at the firm, with no allegation of any misrepresentations, no allegations of harm to any school district and no allegation that any school district failed to understand the relationship of School Services and Dale Scott," John Gray, president and CEO of School Services of California, said in an emailed statement.

Dale Scott & Co., which has seven employees according to the SEC, provides financial advisory services to California school districts. According to its website, the firm is more than 25 years old and also provides bond election advisory and continuing disclosure services.

According to the SEC’s cease-and-desist order to Dale Scott & Co., between October 2011 and March 2016, the registered advisory firm engaged three unregistered parties to provide various services including soliciting municipal advisory business on DSC’s behalf.

“Municipal advisers, including municipal advisors who solicit municipalities on behalf of others, have been required to register with the Commission since 2010,” LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Public Finance Abuse Unit, said in a statement. “Failing to register is a violation of the federal securities laws and, as was the case here, could result in an SEC enforcement action.”

Dale Scott & Co. terminated its relationships with the solicitors months before the June 2016 effective date of Municipal Securities Rulemaking Board Rule G-42.

According to the MSRB, Rule G-42 “establishes core standards of conduct for non-solicitor municipal advisors consistent with the mandates of the Dodd-Frank Act and the fiduciary duty it imposes on municipal advisors in their relationships with municipal entity clients.”

The penalties agreed to in the Dale Scott & Co. case were much lighter than those in an earlier California case with some surface similarities.

The Firm School Business Consulting Inc., according to the SEC, was advising the school districts about their hiring process for financial professionals, while it was simultaneously retained by Keygent LLC, which was seeking the municipal advisory business of the same school districts.

In that case, the SEC’s first enforcement action under the municipal advisor antifraud provisions of the 2010 Dodd-Frank Act, Keygent agreed to a censure and a $100,000 penalty, School Business Consulting agreed to a censure and a $30,000 penalty, that firm’s president Terrance Bradley agreed to be barred from acting as a municipal advisor and pay a $20,000 penalty, while two Keygent principals agreed to penalties of $30,000 and $20,000.

Oetken is a 73-year-old retired school business official who lives in El Cajon, California, according to the SEC.

In addition to Oetken, the SEC order regarding Dale Scott described a third party, “a public affairs company based in California.” It did not announce any proceeding against that company Tuesday.

According to the SEC’s order, Dale Scott & Co. paid the three either a monthly retainer or a percentage of fees earned from certain municipal advisory clients, and was “closely involved” in their solicitations of potential school district clients, including regular update meetings and communications about ongoing solicitations and providing specific background information about school districts’ existing debt and proposed new municipal bond sales.

Oetken was not immediately available for comment Tuesday afternoon.

A deal on which Dale Scott & Co. advised won The Bond Buyer's Small Issuer Deal of the Year award in 2018.