WASHINGTON – Some of the California localities that the National Association of Manufacturers has asked the Securities and Exchange Commission to investigate for alleged fraudulent muni bond document disclosures are denying wrongdoing and fighting back.

NAM sent a March 27 letter to LeeAnn Gaunt, chief of the SEC’s Public Finance Abuse Unit, asking her to investigate alleged fraud committed by New York and the California municipalities of City of San Francisco, City of Oakland, Imperial Beach, City of Richmond, City and County of Santa Cruz, Marin County, and San Mateo County.

LeeAnn Gaunt
LeeAnn Gaunt, chief of the SEC’s Public Finance Abuse Unit

Each of these localities have filed lawsuits against oil companies seeking billions of dollars in damages to pay for infrastructure to protect coastal cities from potential rising floodwaters that they say could result from global warming.

According to the lawsuits, filed last year, the energy companies knew or should have known about the potential impacts of burning fossil fuels, but instead made efforts to discredit the science behind global warming.

ExxonMobil countersued the cities and counties alleging that their own bond documents discredit those claims and could even constitute securities fraud.

Oakland bond documents cited by Exxon in the countersuit and by NAM in its letter to Gaunt say the city is “unable to predict” when natural events such as sea rise or other impact of climate change such as flooding may occur or “whether they will have a material adverse effect on the business operations or financial condition of the city or the local economy.”

But the city’s lawsuit against the oil companies says that it expects a “100-year flood” once every 2.3 years by 2050, and almost weekly by 2100.

The disconnect between these two positions presumes “the possibility that these municipal bond offerings contained misleading statements,” NAM told the SEC in the letter, which was sent by NAM’s Manufacturers’ Accountability Project (MAP), citing the antifraud provisions of the federal securities laws.

“Over the course of our work advocating for manufacturers in America, we have seen several examples of municipalities asserting specific impacts of climate change,” MAP Executive Director Lindsey de la Torre wrote. “Conversely, bonds offered by these same municipalities state that such predictions are impossible to measure. The NAM is increasingly concerned by the municipalities assertions in their legal filings and the approach used to attract investors to its bond offerings.”

Most of the cities named in NAM’s letter did not immediately respond to requests for comment, but those that did were forceful in their denials.

“This is just more hot air from fossil fuel industry puppets,” said Imperial Beach Mayor Serge Dedina. “Making meritless accusations is not a game. The City of Imperial Beach has fully complied with all securities laws.”

San Francisco city attorney Dennis Herrera’s office previously called Exxon’s countersuit “an outrageous abuse of the legal process.”

The SEC declined to comment.

Bond lawyers interviewed by The Bond Buyer over the last few months said that these lawsuits and the countersuit highlight the need for municipalities to be consistent in their public statements. But at least one lawyer has also said that a case could be made that statements made in litigation are not considered public statements the way an official statement is.

The disconnect between these two positions presumes “the possibility that these municipal bond offerings contained misleading statements,” NAM told the SEC in the letter, which was sent by NAM’s Manufacturers’ Accountability Project (MAP), citing the antifraud provisions of the federal securities laws.

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