San Bernardino

The SEC has launched an “informal inquiry” of San Bernardino, Ca.’s finances and ordered the city to preserve bond documents and communications with underwriters. The nature of the agency’s inquiry to the city in Chapter 9 is not detailed in its October 11^th epistle, but directs city officials to preserve all records of securities offerings and written communications with underwriters, fiscal advisers, and credit ratings companies. The action follows the agency’s announcement last July that it may sue Miami over whether it provided adequate financial data to investors when it borrowed through the muni market. In San Bernardino, the county Sheriff’s Department said a probe of possible criminal activity in City Hall had begun several months before the city sought Chapter 9 court protection on Aug. 1. Earlier investigations led to agreements with New Jersey, which settled SEC claims in 2010 that the state misled investors by masking the underfunding of its biggest pension plans, and an accord with San Diego over similar issues. San Bernardino, the third California city to enter bankruptcy this year, relied on a variety of budgetary maneuvers to stay solvent, such as redirecting money from restricted accounts, according to its interim city manager. Mayor Patrick Morris this week stated that the SEC inquiry is “fine.” Mayor Morris, a former judge in criminal and family law courts, said he is aware of no criminal conduct in city finances: “As a trial jurist, I never want to predict…I know of nothing.” San Bernardino failed to make a $1 million interest payment due Oct. 1 on 2005 taxable pension bonds, according to an MSRB filing yesterday by trustee Wells Fargo Bank. The city has about $90 million of outstanding bond debts, according to budget documents, and another $200 million owed to holders of securities issued by the city’s now-dissolved redevelopment agency. The San Bernardino council voted in July to skip payments of $3.4 million to holders of pension debt as well as $2.2 million owed for retiree health care.