SAN FRANCISCO – Victorville, Calif. officials rejected a claim by a former bond underwriter seeking compensation for the costs of investigations into the city’s finances and bond transactions.

The city said in a statement released late last week that its former bond underwriter Kinsell, Newcomb & De Dios Inc. shouldn’t be paid for all of the costs it incurred for participating in grand jury and Securities and Exchange Commission investigations.

Beginning in 1997, KND worked for Victorville on various bond sales to help finance the construction of an air cargo hub and power plant, both of which have been financial sinkholes for the city. In 2006, the firm also took over the obligations of the developer for the construction and completion of the hangar projects.

KND asked the city to pay it more than $300,000 for expenses and attorney fees related to the investigations. But the city contends it only owes the firm the costs related to the discussions related to the Southern California Logistics Airport hanger project, rather than the bond issuances.

City officials said an indemnification agreement signed between the two sides only applies to work related to developing hangars at the airport, not to bond sales.

The City Council rejected the financial firm’s claim on Sept. 18 and has said it intends to work with KND on an appropriate settlement.

Such a claim must be filed by any entity seeking financial damages from a California city before a lawsuit can be filed.

Lawyers for the broker-dealer based in Carlsbad, Calif., said in a letter to the city dated Aug. 23 that they would “seek available legal remedies” if the city refused to settle. In the letter the firm’s lawyer, Kenneth Lounsbery of Lounsbery Ferguson Altona & Peak LLP in San Diego, said the SEC’s investigation centered around the city’s bond issues.

Lounsbery did not return a call for comment Tuesday morning.

The company said it responded to SEC concerns about its role in various bond issues, accounting, and its participation in construction projects, specifically if appropriate disclosure was made to investors and whether KND adhered to the Municipal Securities Rulemaking Board’s Rule G-37 governing political contributions.

Victorville, located about 80 miles from Los Angeles with a population of 111,000, has faced investigations by a San Bernardino County grand jury into its convoluted finances and by the SEC into its bond sales.

The city’s financial problems and missteps appear to have centered on projects to convert the mothballed George Air Force Base into the Southern California Logistics Airport air cargo hub, and to construct a power plant.

According to the grand jury report prepared by an independent consultant, the Southern California Logistics Airport Authority, a redevelopment agency under control of the city, “repeatedly mishandled bond expenditures,” including spending bond proceeds on development projects outside its scope and dedicated area.

The SCLAA has already defaulted on debt payments. City staff said the SCLAA paid off the default in March and made a full payment on the bonds in June.

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