CHICAGO — The head of a firm that triggered a default on $39 million of municipal bonds sold for a failed Missouri sucralose plant received a seven year prison sentence for theft and securities fraud.
Bruce Cole, the former chief executive officer of Mamtek US Inc., had pleaded guilty in September to two criminal counts of securities fraud and one criminal count of theft in a plea deal with prosecutors.
St. Charles County Circuit Court Judge Dan Pelikan Monday handed down the maximum sentence allowed under the plea deal. Cole was facing a prison term of between five and seven years. He received seven years for each of the three counts, to be served concurrently, according to a statement from Missouri Attorney General Chris Koster.
"Cole lied to the people of Moberly and conned investors in his project in order to steal hundreds of thousands in bond money for himself," Koster said in a statement. "Today's prison sentence brings a measure of closure to the pursuit of justice for Moberly."
The Moberly Industrial Development Authority sold bonds backed by a city appropriation pledge to help finance the artificial sweetener plant in 2010. Mamtek US, which said it was the subsidiary of a Chinese firm that makes sucralose, defaulted in August 2011 on a payment to Moberly needed for debt service. The city then informed trustee UMB Bank that it wouldn't honor its pledge to repay the debt. Mamtek then abandoned the half-built factory.
Koster filed four counts of securities fraud and one count of theft against Cole in 2012 after an investigation, along with Randolph County Prosecuting Attorney Mike Fusselman, into the failed project. The Securities and Exchange Commission also aided the probe and has filed its own civil charges against Cole, accusing him of scheming to defraud potential investors.
The local and state probe found that Cole used more than $700,000 of the Mamtek financing for his personal use, including $281,046 to halt the foreclosure of his Beverly Hills, Calif., home.
Cole was awarded $17 million in state tax credits and other incentives for the project, based on the promise that the project would create hundreds of new jobs, but Koster said Cole knew those promises were false. As part of the plea agreement, the federal government will drop its criminal pursuit of Cole.
Cole approached state agencies in March 2010 about building the plant and in May he accepted Moberly's proposal which included bonding assistance. He created false documents to reassure the city of the sham company's existence and submitted improper invoices to the city drawing bond funds for work never performed.
When the bond were sold, they carried an A rating from Standard & Poor's based on the city's appropriation pledge. Moberly lost its investment-grade rating after it reneged on its pledge. The sucralose plant bonds are now rated D.
Cole and the financial firms involved in the deal remain the subject of ongoing litigation or investigations.
The trustee and other creditors forced Mamtek into involuntary bankruptcy and the plant's assets were sold off. Bankruptcy trustee Bruce Strauss has sued Cole and other key figures in the company.
U.S. District Court Judge Nanette Laughrey in August upheld a bankruptcy court-imposed judgment against Cole, finding he fraudulently obtained bond funds and order Cole to return $904,000 transferred to his personal accounts and another $360,000 Cole used to pay off personal creditors.
Several investor-led lawsuits are also pending against the financial firms involved in the bond issue. The former Morgan Keegan underwrote the 2010 bonds.
The Missouri Secretary of State in 2013 filed a civil enforcement action against Morgan Keegan accusing the firm of securities fraud. It accuses the firm of defrauding clients by misrepresenting material facts about the offering.
A group of bondholders suing in state court, led by Shelter Insurance Cos. has added as a defendant Raymond James Financial Inc., the firm that acquired Morgan Keegan in 2012. Shelter's lawsuit and others filed by bondholders accuse Morgan Keegan of securities violations for allegedly misleading potential investors about the viability of the plant and the city's ability to honor the pledge. A separate bondholder lawsuit is also pending in federal court with a decision expected soon on class action status.
Moberly is hoping to improve its credit standing with the adoption in September of new debt management policies to provide guidance for the types of debt issued, the issuance process, and the administration of its debt portfolio.