The U.S. Securities and Exchange Commission on Tuesday charged the town of Oyster Bay and former Town Supervisor John Venditto with defrauding investors for failing to disclose loan guarantees in bond documents.
The SEC’s civil lawsuit, filed in U.S. District Court Eastern Division in Central Islip, also calls for a court-appointed consultant to oversee municipal financial reporting. The agency also seeks a five-year ban on the town selling of securities without first implementing recommendations of the independent consultant, who is to “review and recommend improvements in the towns’ financial reporting policies.”
The lawsuit also noted that Venditto invoked his Fifth Amendment right against self-incrimination when he was interviewed by SEC attorneys. The suit seeks unspecified monetary penalties from the town and Venditto.
The suit alleges Venditto was integrally involved in indirect guarantees made by the town on four private loans between June 2010 and June 2012 totaling more than $20 million on behalf of a town concessionaire. The suit does not name Harendra Singh but it describes concessions agreements at the town’s golf course and beaches that had been awarded to Singh’s companies.
The guarantees to Singh are at the center of federal bribery charges brought against Venditto and Nassau County Executive Edward Mangano. Town officials have disputed the guarantees’ legitimacy, and Venditto and Mangano have pleaded not guilty in the criminal charges. On Tuesday, federal prosecutors filed 21 new charges against Venditto. A call to Venditto’s criminal attorney was not returned Tuesday.
“This action concerns defendants’ fraudulent omissions and misrepresentations in failing to disclose to the investing public material information relating to the town’s indirect guarantees of millions of dollars of private bank loans for the benefit of one of the town’s concessionaires,” the SEC lawsuit alleges.
Oyster Bay Town Attorney Joseph Nocella, who signed the town’s lawsuit brought against Singh and others this year, said in a statement Tuesday that “the town does not comment on pending litigation, especially that involving the prior administration.”
The SEC lawsuit also states the town and Venditto failed to disclose the guarantees in more than two dozen securities offerings from 2010 to 2015 and that when the town eventually disclosed the guarantees, those disclosures “were materially misleading.”
Mangano told Venditto on or about Jan. 21, 2010, that the concessionaire needed help with financing because lenders had told the concessionaire that without the backing of the town, which had a AAA rated credit at the time, they would not lend his companies money, according to the suit.
The town board subsequently authorized Venditto to enter into an agreement with the town’s bank but outside legal counsel advised that such a guarantee would not be legal, according to the SEC lawsuit.
Venditto and Mangano then met with a law firm that Mangano had previously worked for to craft a legal structure so the town could indirectly guarantee the concessionaire’s loans, according to the SEC suit. The town subsequently used another firm, whose opinions were based on the original loan guarantee structure, to write legal opinions on additional loans, according to the suit.
SEC staff notified the town in June that it would recommend enforcement action and then issued a formal notice in July. Town officials responded to the SEC in August that misstatements were immaterial or based on information concealed from town officials.
Details in the SEC lawsuit contradict statements by Venditto’s attorney in his criminal case and in Oyster Bay’s lawsuit against Singh and others that the guarantees were the work of a “rogue” employee.
The SEC alleges that Venditto and senior town officials were engaged in the effort and knowingly made false statements to investors, credit rating agencies and others that those guarantees were unenforceable and made without town officials’ knowledge. Those statements made in securities documents and in conversations with investors constitute violations of securities laws, according to the lawsuit.