SEC Resolves Remaining Litigation in Rochester, New York Bond Case

The Securities and Exchange Commission recently wrapped up all remaining legal matters in the case involving the City of Rochester, New York, its former finance director Rosalind Brooks-Harris, and Capital Markets Advisors, along with its principals Richard Tortora and Richard Ganci. This final decision came from a U.S. District Court in the Western District of New York.

Previously, all parties except the CMA defendants had agreed to judgments in favor of the SEC. Interestingly, despite the resolution, there were no financial penalties imposed on the city of Rochester. The CMA Defendants, while not admitting or denying the SEC’s allegations, consented to the court’s judgment. This judgment not only prohibited them from violating certain sections of the Exchange Act and MSRB rules but also required civil penalties of $175,000 for CMA, $30,000 for Ganci, and $30,000 for Tortora.

To settle the matter, the SEC dropped its charges against CMA and Ganci for violations of the Securities Act and Exchange Act. These drop-offs were in relation to serious fraud charges brought up in the complaint. Richard Tortora expressed satisfaction with the settlement and relief in putting the matter behind them.

The SEC initially filed the complaint in June 2022, accusing the City of Rochester, Brooks-Harris, and CMA of deceiving investors during a $119 million bond offering for the Rochester City School District. The complaint highlighted that financial statements provided to investors were outdated, failing to reveal that the District was facing a significant budget shortfall due to overspending on teacher salaries.

Separately, the complaint alleged that the CMA Defendants neglected to disclose to almost 200 municipal clients the conflicts of interest arising from their contingent fee agreements with the City. Thus, they violated MSRB Rule G-42 on standards of conduct.

In a related development, former Rochester School District CFO Everton Sewell settled charges of being aware of the district’s budget shortfall and misleading a credit rating agency regarding its magnitude. Sewell, like Brooks-Harris, faced a $25,000 penalty as part of the agreement.