Another shoe drops in the SEC's Oyster Bay, N.Y. fraud case

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WASHINGTON – The former attorney and deputy supervisor of Oyster Bay, N.Y. has agreed to settle Securities and Exchange Commission charges that he defrauded investors of the town’s offerings by concealing financial deals with a local businessman that could have hurt the town’s finances.

Leonard Genova, 54, agreed to be permanently enjoined by a court from participating in any municipal securities offerings or engaging in any muni activities with any broker-dealer or issuer. He also agreed to be enjoined from violating the securities laws in the future.

The settlement must be approved by a judge in the U.S. District Court for the Eastern District of New York, who will later decide whether to require Genova to pay civil penalties. The SEC has asked that an unspecified amount of civil penalties be imposed on Genova.

The case revolves around action taken by former town supervisor and CEO John Venditto and Geneva between June 2010 and June 2012 to have the town indirectly guarantee four private bank loans totaling more than $20 million for a local businessman who owned and operated restaurants and concessions and political support, according to the SEC.

If the businessman defaulted on the loans, the town would have had to make termination payments to the lenders almost immediately, representing “a significant risk to the town’s liquidity,” the SEC said.

The SEC’s complaint against Genova does not name the local businessman, calling him only “the Concessionaire.” But he was identified as Harendra Singh in other litigation. He had met Venditto and Geneva in the 1990s and over the years provided them with a series of benefits and gifts such as personal limousine service, free meals and drinks at his restaurants, and space for events and fundraisers.

Singh gave an attorney employed by the town attorney a free family trip to Italy and two trips to India as well as trips to South Korea and Mexico. He also gave him free meals and loans, the SEC said.

The scheme began in January 2010 when Venditto, Genova and others started trying to find a way to help the businessman with a financing, the SEC said.

Genova, who was deputy supervisor from October 2002 through November 2010 and town attorney afterward though December 2016, learned from the town’s outside counsel during that spring that the town was prohibited from guaranteeing private debt under the New York State Constitution.

So Genova and Venditto worked with another law firm to develop a structure for the indirect guarantee that they believed would get around the prohibition.

The two tried to hide the indirect guarantees from key town officials, the town’s advisors, taxpayers, investors, and the public. For example, the town resolution approving the financial assistance was drafted to be vague, the SEC said.

They told an underwriter and the underwriter’s counsel that a “rogue” attorney had entered into the loan guarantees without their knowledge or board approval and that their signatures on documents were obtained under false circumstances.

The indirect guarantees were not disclosed in documents for any of the 26 municipal securities offerings the town issued between August 2010 and December 2015.

When the guarantees finally came to light through media reports and a criminal indictment of the businessman, town officials disclosed the e result, the disclosures were materially misleading, the SEC said.

The SEC said its investigation is continuing, meaning others may be hit with enforcement action. The commission charged the town and Venditto in November 2017 and that case is still ongoing. The SEC waited to issue its charges against Genova until late Thursday, after it reached a settlement with him.

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Enforcement Government finance Corruption Securities law SEC Washington DC New York