The SEC charged a Long Island town and its former supervisor with defrauding investors in connection with municipal securities offerings.
In a Complaint filed in the Eastern District of New York, the SEC charged the town of Oyster Bay in Long Island, New York, and its former supervisor John Venditto (collectively, the "Defendants") with repeatedly defrauding investors. The SEC alleges that the Defendants failed to make adequate disclosures concerning an agreement to indirectly guarantee private loans totaling more than $20 million to a vendor who operated several restaurants and concessions in Oyster Bay. According to the Complaint, the "unusual" decision to guarantee the loans was influenced by the close relationship between the vendor and local officials. This included the vendor providing officials, including Mr. Venditto, with free limousine services, the use of office space, and free food and beverages at the vendor's restaurants, in addition to cash payments made to Oyster Bay and Nassau County officials.
The SEC alleged that the Defendants took measures to hide the indirect guarantees from investors and prospective investors in Oyster Bay's municipal securities offerings, as well as officials and outside advisers who helped to prepare the offerings and financial statements. The Defendants only disclosed (in Oyster Bay's securities offering documents) the existence of the indirect guarantees in response to media reports on a criminal indictment filed against the vendor. Even those disclosures contained "materially misleading statements" concerning the guarantees. The SEC alleged that such information was material to investors, as contingent liabilities have the potential to seriously impact the town's liquidity.
In a parallel action, the U.S. Attorney's Office for the Eastern District of New York filed a superseding indictment, including securities fraud charges against Mr. Venditto.
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