WASHINGTON – A former official with the Ramapo Local Development Corp. has pleaded guilty to securities fraud — the first conviction for criminal federal securities fraud in connection with municipal bond issuances, according to a U.S. attorney.
Aaron Troodler, the former executive director of the RLDC, faced criminal charges after Preet Bharara, the U.S. Attorney for the Southern District of New York, alleged that he and Christopher St. Lawrence, Ramapo's supervisor and director of finance, misled investors in connection with municipal bonds. St. Lawrence is still disputing the allegations in court.
"As we said at the time of his arrest, N. Aaron Troodler defrauded both the citizens of Ramapo and thousands of investors around the country, helping to sell over $150 million of municipal bonds on fabricated financials," Bharara said. "Today, Troodler has admitted to committing securities fraud. This guilty plea, in what we believe to be the first municipal bond-related criminal securities fraud prosecution, is a big step in policing and bringing accountability to the $3.7 trillion municipal bond market."
Troodler, who led the RLDC when it issued the bonds in question, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy, which carries a maximum sentence of five years in prison, according to the U.S. attorney.
U.S. District Court Judge Cathy Seibel, who sits on the U.S. District Court for the Southern District of New York, is scheduled to sentence Troodler on Sept. 18.
Joseph Poluka, an attorney for Troodler, was unavailable for comment.
Troodler and St. Lawrence also face pending civil charges from the Securities and Exchange Commission.
U.S. attorneys allege that Troodler and St. Lawrence lied to investors in the town's and RLDC's bonds, some of which were used to finance a minor league baseball stadium, in order to conceal the deteriorating state of Ramapo's finances and the inability of the RLDC to make scheduled payments of principal and interest to holders of its bonds from its own money.
Much of the fraudulent activity was designed to conceal the town's deteriorating general fund, which is Ramapo's primary operating fund and faced deficits ranging between $250,000 and $14 million between the town's fiscal years 2009 and 2014. As of August 2015, the town had more than $128 million in outstanding bonds that had been issued for various municipal purposes while the RLDC, which is owned by the town, had issued $25 million in bonds to pay for the minor league baseball stadium, according to the U.S. attorney.
The fraud preceded the construction of the baseball stadium, but the $58 million total cost of the stadium played a role in the town's financial problem, the U.S. attorney said. Ramapo paid more than half the cost despite the fact the town's citizens rejected paying for the stadium through bonds in a 2010 referendum and St. Lawrence publicly stated that no public money would be used.
St. Lawrence also lied to the RLDC's bond rating service in 2013 when he said the 2012 general fund balance would remain unchanged from the 2011 balance, according to Bharara. After that conversation, St. Lawrence reportedly told town employees "we're going to have to all be magicians to get some of those numbers."
Troodler and St. Lawrence also told investors that Ramapo and the RLDC's bonds were being paid using operating revenue drawn from things like running the baseball stadium and selling condominiums. In reality, the RLDC was making payments using money Troodler either borrowed from the bank or got from the town, according to the indictment.
Much of the cover-up was done through keeping fake receivables on the town's books that kept the general fund from having a negative balance, Bharara said.
Additionally, St. Lawrence made more than $12 million in transfers from Ramapo's ambulance fund to the general fund from 2009 to 2014. The two funds had different tax bases and such transfers should only have been made as loans, according to the indictment.
