Settlement talks may mean end of Malachi enforcement case

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PHOENIX - The Securities and Exchange Commission's lawsuit against Malachi Financial Products, a municipal advisor accused of violating its fiduciary duty, may be coming to an end as lawyers are engaged in settlement talks according to court documents and an attorney involved with the case.

The lawsuit, filed Jan. 2 in the U.S. District Court for the Southern District of Mississippi, had still not been responded to when the SEC indicated in a court filing earlier this month that Malachi and its principal Porter Bingham were interested in reaching a settlement agreement rather than continuing with litigation.

The SEC charged that the firm violated its fiduciary duty to put a municipal client’s interests ahead of its own when it allegedly overcharged the City of Rolling Fork, Miss. and failed to disclose $2,500 in payments that Bingham accepted from the underwriter of an October 2015 bond offering.

The fiduciary duty became law for municipal advisors under part of the Dodd-Frank Act, and is now enshrined in Municipal Securities Rulemaking Board rules.

The SEC also charged Malachi and Bingham with violating the MSRB’s fair dealing rule, G-17. The defendants were supposed to file their responses to the charges by Feb. 1, but by Feb. 13 had not done so when the SEC advised the court that settlement talks had commenced.

“Settlement talks have been ongoing between the parties since late January 2018, however no agreement has been signed as of the filing of this status report,” the SEC said in its court filing. “If settlement offers are signed and submitted by defendants Malachi and Bingham, the Commission will promptly advise the court. Any written settlement offers submitted by the defendants would be required to be submitted to the Securities and Exchange Commission in Washington, D.C., and would have to be accepted by that body before they can be presented to the court for consideration or the signing of the final judgments. This process typically takes 60 to 75 days after receipt of signed settlement offers from the defendants.”

Malachi and Bingham are represented in these settlement discussions by attorney William Leonard of the firm Taylor English Duma in Atlanta, Ga. Leonard also represented the firm and Bingham during the SEC’s investigation. The SEC said in its court filing that Leonard told its lawyers that he has not been hired to litigate the case and does not intend to appear as defense counsel in court. Leonard confirmed to The Bond Buyer that his clients are discussing settlement, but declined to offer details.

The SEC said in its filing that it will not seek default judgments so long as it appears that the settlement process is moving forward.

“Undersigned counsel is very mindful of the Commission’s prosecutorial obligation in this matter and will promptly seek entries of default against the defendants if it appears that settlement talks are not progressing to a productive end,” wrote SEC attorney Edward Sullivan.

The news comes shortly after a similar SEC filing in New York revealed that the Commission had obtained signed settlement offers from most of the defendants in its case against Ramapo, N.Y. Those settlements with Nachman “Aaron” Troodler, Nathan Oberman, and Michael Klein also have not been finalized by the SEC or the court.

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Enforcement SEC enforcement Securities law Tax-exempt bonds Court cases SEC DoJ Washington