Muni advisor firm and principal must pay up in bond fraud case

WASHINGTON – Atlanta-based municipal advisor Malachi Financial Products Inc. and its principal have been ordered to disgorge ill-gotten gains and pay civil fines for defrauding the City of Rolling Fork, Miss., in connection with a muni bond offering.

The firm and Porter B. Bingham were sanctioned by Judge Halil S. Ozerden of the U.S. District Court for the Southern District of Mississippi on Friday after the Securities and Exchange Commission claimed that they overcharged the city for services related to a muni bond offering in 2015 and failed to disclose a payment received from an employee of the underwriter.

In a lawsuit filed against them in early January, the SEC also charged them with violating their fiduciary duty to put their client’s best interests first.

The SEC publicly announced the court judgments against the firm and principal on Monday.

A recent court ruling in Illinois advances a conspiracy case against prominent Wall Street banks.
A recent court ruling in Illinois advances a conspiracy case against prominent Wall Street banks.

Malachi and Bingham did not admit or deny the allegations in the SEC complaint but consented to disgorge a total of $33,000 plus $2,858 in prejudgment interest. In addition, Malachi agreed to pay a civil penalty of $50,000 and Bingham a penalty of $25,000.

Both the firm and Bingham were permanently enjoined from further violations of the federal securities laws and Municipal Securities Rulemaking Board Rule G-17 on fair dealing.

William Leonard, a partner at Taylor English in Atlanta who is representing the Malachi firm and Bingham, said, “We’re glad to get it behind us,” when contacted about the case and sanctions.

According to the SEC, the city hired Malachi as its muni advisor for a $1.1 million muni bond offering planned for 2015. The firm is owned and controlled by Bingham.

After the bond offering closed, Malachi and Bingham submitted two invoices to the bond trustee for payment. One of those, for $33,000, was fraudulent because it was for services that they did not perform and the city did not authorize, according to the commission.

Although both invoices were addressed to the mayor, Malachi did not provide them to the mayor or any other city official. Therefore, the city was not aware of the fraudulent overcharge until after the bond trustee paid the invoice, the commission found.

The SEC also claimed that Bingham failed to disclose to the city that he had accepted payments totaling $2,500 from Anthony Stovall, an employee of a municipal underwriter, just before he and Malachi recommended that the city hire Stovall's firm to underwrite the bond offering.

The city ultimately hired that underwriting firm based on Bingham’s and Malachi's recommendation, the SEC alleged.

Before the suit was filed, Stovall agreed to settle charges that he violated Rule G-17 as well as the MSRB’s Rule G-20 on gifts and gratuities, which prohibits dealer representatives from giving anything of more than $100 in value to a person in connect with municipal securities business of the employer of the recipient.

Stovall agreed to a $20,000 civil penalty and a suspension of six months.

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Enforcement SEC enforcement Litigation Court cases Finance and investment-related court cases Munis SEC MSRB Washington DC Mississippi Georgia
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