SEC reaches partial settlement with consultant of failed bond-financed Arizona sports park

Icon Architectural Group

The Securities and Exchange Commission has reached a partial settlement with a consultant who prepared financial projections supporting a municipal bond offering for an ill-fated Arizona sports complex. The settlement comes two days after the SEC sued the consultant in federal court.

Jeffrey Puzzullo, 70, pleaded guilty to criminal conduct in the case, admitting to one count of conspiracy to commit securities fraud and wire fraud; one count of securities fraud; one count of wire fraud; and one count of aggravated identity theft.

The SEC filed the lawsuit Tuesday in the Southern District of New York.

Puzzullo, who is a resident of San Diego, collaborated with three other company executives – who all pleaded guilty last year – to create false documents for a $284 million bond sale promising rosy revenue projections that never materialized. Puzzullo worked as the sports complex's construction consultant and was paid "substantial payments from the ill-gotten gains obtained through his and the prior defendants' false and misleading statements and fraudulent scheme," the SEC said.

The charges are the latest fallout for the now-notorious failed youth sports venture called Legacy Cares that won investor interest based on fraudulent revenue projections. The borrower began missing payments within its first year of operation after floating $250.8 million of unrated revenue bonds in 2020 and another $33 million in 2021 through the Arizona Industrial Development Authority. The bonds were priced at yields from 6.25% to 7.836%.

The speculative-grade financing was "an ugly deal," with "a lot of red flags," high-yield investors said last year.

Legacy Cares' initial January 2023 payment default was quickly followed by Chapter 11 bankruptcy in May 2023. Bondholders, who have launched their own lawsuits against the underwriter and bond counsel, received about $2.4 million of the original $284 million from the bankruptcy court sale of the sports complex.

The commission's settlement with Puzzullo, approved by the court on Thursday, permanently enjoins him from committing violations of the federal securities laws by engaging in the actions that the SEC charges him with and from participating in the issuance, purchase, offer or sale of any securities except for his personal account. The settlement leaves open for later resolution the question of monetary relief. A date for determining the amount of restitution has been set for April 22, according to court filings. 

"The SEC anticipates that the parties will attempt to negotiate a resolution of the monetary relief the SEC seeks after the restitution amount is ordered," the commission said in a March 4 letter to Judge John Koelt.

Like its previous charges against defendants Randall Miller, Chad Miller, and Jeffrey De Laveaga, all of Legacy Sports, the SEC said Puzzullo was part of a scheme to mislead investors with forged letters of intent and pre-contracts from sports providers. Puzzullo also created misleading economic development reports and revenue projections based on those false documents, the agency said, and knew that the other men were giving the documents to the underwriter to be included in a data room and as attachments to the 2020 bond offering.

"Some of the letters [of intent] were entirely fake, with the phony documents including, among other things, incorrect letterhead from outdated sources, forged signatures, and incorrect or misspelled signatories," the SEC said. "The creation and gathering of the fraudulent letters of intent was a collaborative effort amongst Puzzullo and the prior defendants, who communicated with each other instructions from Randy Miller and Chad Miller and shared drafts of fake documents. Puzzullo, Randy Miller, Chad Miller and De Laveaga each personally fabricated false documents."

Puzzullo prepared a "Summary Five-Year Pro Forma" financial statement detailing the expected revenue and expenses for the first five years of the sports complex's operation that was part of the bond offering, the SEC said. He also created, with the Millers, a consultant report titled "Economic and Fiscal Impact Summary" for the bond offering that outlined the economic impact on the local community that was also based on the fabricated letters of intent, the SEC said. 

All the documents were provided to underwriter Ziegler ahead of the deal, the SEC said. "Because the dates on some of the letters of intent were stale, the underwriter for the bonds had requested that Sports USA obtain additional communications from the purported letter writers that were more current and that reflected a further level of commitment from those entities," the SEC lawsuit said. "In response to this request, Chad Miller, with Puzzullo and others at Sports USA working at Chad Miller's direction, fabricated pre-contracts with false signatures from some of the entities that had purportedly signed the letters of intent."

Last April, the U.S. Attorney's Office for the Southern District of New York and the SEC announced charges on the same day against the Millers and De Laveaga for violating the antifraud provisions of the federal securities laws.

Randy Miller was the former chairman and president of Legacy Sports, and his son, Chad Miller, was the former CEO of Legacy Sports. De Laveaga was the company's chief operating officer. 

Among other allegations, the DOJ said the father and son "promptly converted at least hundreds of thousands of dollars of the bond proceeds to their personal use," including cars, homes and salaries, the complaint said.

In May, the SEC reached a partial settlement with De Laveaga. Later that month, the Millers pleaded guilty in the DOJ case, admitting to one count of securities fraud, which carries a maximum sentence of five years in prison, and one count of aggravated identity theft, which carries a mandatory consecutive sentence of two years in prison.

In July, the SEC announced partial settlements with the Millers. 

Prior to the actions by the U.S. Attorney's Office and the SEC, burned bondholders had filed two lawsuits against Ziegler, bond counsel Gust Rosenfeld, Legacy Sports, and both Millers in Maricopa County Superior Court. The lawsuits were later consolidated into one complaint.