PHOENIX — A federal judge has permanently enjoined the town of Ramapo, N.Y., and the Ramapo Local Development Corp. from violating the antifraud provisions of the securities laws and ordered them to hire an independent counsel to clean up their muni disclosure practices.
The Securities and Exchange Commission announced Wednesday that Cathy Seibel, a judge in the U.S. District Court for the Southern District of New York recently entered the final judgment against the town and RLDC.
The town and authority can't issue munis for three years without hiring an independent disclosure counsel acceptable to the Securities and Exchange Commission, under the order. They also must hire an independent financial consultant and an independent auditing firm.
The order stems from charges brought by the commission in April of last year alleging that Ramapo and RLDC, along with four town officials, hid a deteriorating financial situation from their municipal bond investors.
The former elected supervisor of the town, Christopher St. Lawrence, was convicted of criminal fraud charges in May. The SEC said it is continuing its enforcement action against St. Lawrence and three others.
The SEC said that town officials resorted to fraud to hide the strain in the town’s finances caused by the approximately $60 million cost to build a baseball stadium as well as the town’s declining sales and property tax revenues. They “cooked the books” of the town’s primary operating fund, the commission alleged, to falsely depict positive balances between $1.4 million and $4.2 million during a six-year period when the town had actually accumulated deficits as high as nearly $14 million.
The town denied the SEC’s charges in court, but then decided earlier this month to agree to a settlement with the commission that needed only the judge’s approval.
Under the terms, the town and authority will submit to the court three proposed candidates to serve as the independent consultant. The candidates must be acceptable to the SEC, and the court will choose from among them or among any other candidates it chooses.
After the consultant is appointed, it shall have 120 days to issue a report recommending improvements to the town's and RLDC's financial reporting procedures and controls, as well as to municipal securities offerings disclosure policies and procedures.
The town and RLDC will adopt all recommendations contained in the independent consultant's report within 60 days of that report, though the town is permitted to dispute the necessity or appropriateness of recommendations with the court.
In a statement provided to the Bond Buyer, current Ramapo supervisor Yitzchok Ullman said he was happy to resolve the SEC action. Ramapo had its credit rating withdrawn by Moody’s Investors Service following the revelations -- something the town is eager to remedy.
“We are pleased with the settlement and continue to push forward with initiatives to strengthen Ramapo’s finances and oversight," Ullman said. “We have enacted a sweeping reform agenda intended to send a clear message that the Town of Ramapo is committed to providing efficient and effective services to the community while being responsible stewards of the money entrusted by taxpayers. Resolving this matter is a critical step in the right direction.”
Ullman detailed some steps the town has already taken to get its fiscal house in order, including passing a local law preventing any future town board member from serving in the dual role as finance director, replacing its auditor, and exploring ways to cut costs in operating town assets.
“Ramapo remains a vibrant, relatively wealthy community with a sizable tax base and strong real estate market," Ullman said. “With about fifty per cent of the town being parkland, and with Ramapo continuing to have among the lowest crime rates of any similarly sized municipality in the country, Ramapo remains a great place to live, work and raise a family.”
St. Lawrence’s criminal trial is in the sentencing phase, with experts being called in the coming days to testify to the appropriateness of financial penalties. The SEC said it is continuing its civil enforcement actions against: St. Lawrence, Nachman Aaron Troodler, the former executive director of the RLDC, Michael Klein, former town attorney, and Nathan Oberman, the town’s former deputy finance director.