Bond Buyer Online: Washington -
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Published on: 8/8/2002
Last Visited: 8/8/2002
"We received communication from Martha Mahan Haines indicating that it was her opinion that if we moved forward with the call we would be committing securities fraud," Fred Holland, a partner at Murphy, Butterfield & Holland, the school district's lawyer, said yesterday."So we had to rescind the call ... [It's] kind of a no-brainer."
The February 1985 bonds that were to have been called had been refunded and escrowed to maturity by refunding bonds the school district had issued in August 1985.The school district had planned to call the bonds with the money it had obtained from the Treasury Department's Feb. 15 redemption of Treasuries that had been held in the sinking fund for the August 1985 issue.
Emmet & Co., a Far Hills, N. J., broker-dealer that had sold these bonds to its clients at prices that assumed they were noncallable, had asked the SEC to stop the school district's proposed redemption of the bonds.
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Holland said Haines, the chief of the SEC's Office of Municipal Securities, told him in a telephone conversation last Friday that the call would violate the federal securities fraud laws.At his request, Haines then sent the school district her opinion in writing.In her memo, Haines cited SEC guidance issued in 1988 and 1998 that warned issuers they would be misleading investors if they tried to call escrowed-to-maturity bonds without previously making clear in the defeasance notice for the bonds and other bond documents that they had reserved their right to call the bonds, Holland said.
"She said this transaction fell within the parameters of that guidance," he said.
"But that doesn't mean that we will never proceed with a call in the future," Holland said."Our bond counsel is still telling us that we have a contract right to make the call and I guess [this kind of issue] has never been adjudicated."
"We need to determine, I think, whether there is some way, short of proceeding with the call, that we can get some kind of more official ruling from the SEC or from a court that would give us an opportunity to move forward," he said.
The school district's taxpayers will lose about $220,000 to $250,000 if the bonds cannot be called, said Holland."If we could get a ruling from somewhere that would indicate something to the contrary of what Martha's opinion was, someone with a higher level of authority, we would still be interested in trying to mitigate that effect to the taxpayers."
Holland said the school district may face a similar situation and more potential losses in November, if Treasury calls another series of Treasury securities that are in the sinking fund for the August 1985 refunding bonds.
Haines would not comment on the district's rescission of its Aug. 15 call.
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