SEC subpoena details probe into Atlanta airport spending

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Two federal investigations into spending at Hartsfield-Jackson Atlanta International Airport may re-energize a quest by Georgia lawmakers who want the state to take over the city-owned asset.

The Securities and Exchange Commission is investigating whether airport revenues and local taxes on aviation fuel were used for purposes other than capital or operating costs, according to a subpoena the SEC sent to Atlanta Oct. 9, which was obtained by The Bond Buyer through a public records request to Atlanta.

“This investigation is a non-public, fact-finding inquiry,” SEC senior counsel Justin Delfino said in a cover letter. “We are trying to determine whether there have been any violations of federal securities laws.”

The 18-page subpoena indicates that regulators are focusing their inquiry on the period from Jan. 1, 2016, to the present.

The SEC said it wants documents, communications and policies concerning airport revenue and local tax expenditures that may have been made on things other than capital or operating costs of the airport. The city must also produce the identities of everyone responsible for ensuring the compliance of grants issued by the Federal Aviation Administration.

The SEC said it wants the identities of those who approved the airport’s comprehensive annual financial reports for fiscal years 2016, 2017 and 2018, as well as the individuals who drafted and approved the “Management’s Discussion and Analysis” in those CAFRs.

The wording of the subpoena suggests there is a concise and targeted investigation into specific airport spending, said Kathleen Marcus, a shareholder at Stradling Yocca Carlson & Rauth P.C., whose practice focuses on government and regulatory enforcement. She's not involved in the Atlanta proceeding.

“It appears to me they are trying to parse out and look for documents and communications that might fall outside what they would consider appropriate expenditures,” Marcus said. “So this has moved into the formal investigation stage.”

The city, whose aviation department runs the airport, must respond to the SEC’s subpoena by Oct. 31.

“The city intends to cooperate with the fact-finding inquiry,” Mayor Keisha Lance Bottoms’ office said in a statement Wednesday. “The letter from the SEC expressly indicates that the investigation does not mean that the SEC has concluded that anyone violated the law.”

The statement is exactly the same as a note that appeared Oct. 16 on the final pricing wire for the issuance of $255.02 million of airport refunding bonds. The city didn’t say why the SEC inquiry wasn’t disclosed sooner.

In 2016 and 2017, former Mayor Kasim Reed was in office. Roosevelt Council was general manager of the airport. Bottoms, who was sworn into office Jan. 2, 2018, is named in that year’s CAFR. She appointed Council to be the city’s chief financial officer, a job he holds today.

Disclosure of the SEC inquiry comes on the heels of an ongoing administrative proceeding the FAA opened this summer, part of which is based on a complaint from a concessionaire at the airport.

The FAA is also looking into the “potential unlawful diversion of airport revenues to certain legal fees paid by the city, potential improper withholding of airport records and documents affecting the airport and potential violation of grant assurance provisions,” according to a disclosure in bond documents for the airport refunding deal.

The disclosure said the city disagrees with “many of the factual findings” in the FAA’s initial review, and is considering the legal and administrative options that it may pursue.

Marcus, who is a former enforcement officer for the SEC, said it is not uncommon for federal agencies to coordinate their investigations.

The SEC and FAA may give a renewed impetus to state lawmakers' drive to take over Hartsfield-Jackson.

That effort started this year after state lawmakers who reviewed several years of procurement and hiring problems at the airport proposed legislation that would have created a state authority to take control of the airport from Atlanta.

Lawmakers ended their annual session April 3 without coming to agreement on a plan to force the state government into a bigger role at the airport. The issue remains alive because the legislation can be considered again in 2020, the second year of the legislature's biennial session.

Hartsfield-Jackson is an economic powerhouse, named the world’s busiest airport by the Airports Council International for 21 years running, credited by ACI with handling more than 107 million passengers in 2018.

Atlanta is the headquarters and largest hub of Delta Air Lines, which opposed the state takeover, as did the Georgia Coalition for the People's Agenda, the NAACP's Atlanta chapter and the Urban League of Greater Atlanta.

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SEC enforcement Airport revenue bonds Litigation Securities law City of Atlanta, GA SEC Federal Aviation Administration Georgia Washington DC