BEAUMONT, CA – A federal case involving securities violations by the former city manager for Beaumont, along with the Beaumont Financing Authority, was settled today with agreements to pay financial penalties — without admissions of guilt.
Alan Charles Kapanicas, 64, of Palm Desert and the BFA, a municipal entity, reached the settlements following negotiations with attorneys from the U.S. Securities & Exchange Commission.
The SEC alleged in court papers that Kapanicas, who also served as executive director of the BFA until he left the city manager’s position in the first half of 2015, failed to file disclosures and adhere to other fiduciary duties in arranging bond sales in support of a community facilities district between 2003 and 2013.
Two-dozen bond offerings were executed, netting $260 million. The SEC said the underwriter for the sales was Costa Mesa-based investment banking firm O’Conner & Co. Securities Inc. and its cofounder, Anthony Wetherbee, both of whom were flagged for financial compliance failures.
Kapanicas, without admitting or denying anything, agreed to pay a $37,500 penalty. The SEC settlement will not mitigate the felony case against him and six other former Beaumont officials, which is pending in Riverside County Superior Court.
According to the government, the BFA in its agreement promised to retain an independent consultant to review and strengthen policies and procedures, as well as implement a training program for employees on appropriate reporting of municipal financial activities.
The SEC said Wetherbee agreed to pay a $15,000 penalty and serve a six- month suspension from the securities industry, while O’Conner & Co. agreed to pay a $150,000 penalty and utilize the services of an independent consultant to inspect its compliance procedures.
“We are pleased to have this chapter behind us and look forward to continuing to cooperate with the SEC staff and to further enhancing our compliance efforts moving forward,” Beaumont Mayor Lloyd White said. “Through this settlement, the city will be making an investment in itself to better ensure full compliance and best practices going forward.”
LeeAnn Gaunt, chief of the SEC’s Public Finance Abuse Unit, said the case highlights the importance of “timely and complete” disclosures by municipal bond issuers.
“Issuers and underwriters will continue to be held accountable when they fail to provide investors with an accurate picture of past compliance with continuing disclosure obligations,” Gaunt said.
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According to the SEC, in poring over filings, investigators identified numerous instances in which the BFA failed to provide investors with information regarding operations within the community facilities district, which served as the revenue-generating entity to repay bond purchasers.
The agency alleged that because data went unreported, $32 million in debt sold in 2012 and 2013 “appeared more attractive,” while “investors were misled about the likelihood that the district would comply with its … disclosure obligations.”
A hearing on the criminal case against Kapanicas is slated for Sept. 15. Also charged are Joseph Sandy Aklufi, 70, of Riverside, William Kevin Aylward, 54, of Cherry Valley, Frank Dennis Coe, 52, of Beaumont, David William Dillon, 63, of Temecula, Ernest Alois Egger, 60, of Mendocino, and Deepak Moorjani, 70, of Yorba Linda.
Aklufi was Beaumont’s city attorney; Aylward the finance director; Coe the police chief; Dillon the planning director; Egger the economic development director; and Moorjani the public works director. All departed city government in 2015 and were charged in May 2016 with a variety of felonies, including misappropriation of funds, conspiracy, embezzlement by a public official and financial conflict of interest.
Prosecutors allege the defendants engaged in schemes using complex arrangements tied to bond sales and development fees. Coe was awarded interest- free loans straight out of the treasury that were not vetted by the Beaumont City Council, according to the District Attorney’s Office.
It’s alleged that professional services firm Urban Logic Consultants — in which Dillon, Egger and Moorjani were executives — was retained by the city in the early 1990s and pulled levers that ultimately resulted in losses totaling $42.96 million.
All of the defendants are free on bail amounts ranging from $100,000 to $1 million.