Please Skip This Boring Post

[Mark Kindt]

Securities Fraud Liability Now Runs To Third-Parties

On March 27, 2019, the U.S. Supreme Court issued a 6-2 decision in Lorenzo v. SEC holding that an individual who is not a “maker” of a misstatement can nonetheless be held primarily liable under Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder for knowingly “disseminating” a misstatement made by another person. This potentially expands the rights of private plaintiffs to bring Section 10(b) claims against those who knowingly or recklessly transmit false and misleading statements that were made by someone else.

In keeping with my prior Deck essay "Civic Accountability -- Honesty In Local Government I", here we can see an expansion of the scope of securities fraud liability to third-parties who knowing disseminate a misstatement of another.

Because the City of Lakewood is an issuer of municipal bonds ("debt securities"), it has duties under the federal securities laws not to make material financial misstatements.

Now, we see that potential fraud liability could also run to third-parties who help convey this information.

Think back to the press conference in January 2015 where we learned all about $120,000,000 of new investment in Lakewood. Later, disclaimed by insiders as "bogus".

[Mark Kindt]

Not An April's Fool Prank

Here is a copy of the Supreme Court opinion.

Trust me. It is boring.

[Stan Austin]

Mr. Kindt---Which individuals positions in a municipal administration would be exposed and would this exposure include the legislative branch of a city government? Stan Austin

[Mark Kindt]

Mr. Austin, I write this simply to note that all elected public officials and public employees have duties of honesty and those duties of honesty have a wide-variety of sources in oaths, codes, the charter, and in statutes.

This is not just a "we-do-whatever-we-want-to-because-we-have-home-rule" approach to honesty as they seem to pretend it is.

There are potential real-world consequences associated with financial misrepresentation by public authorities. (Call Harrisburg, PA.)

In the realm of the enforcement of U.S. securities laws, the Supreme Court has just broadened that risk to third-parties.

Earlier this year the City of Lakewood did $40,000,000+ worth of business in the municipal bond market; these are securities governed by the SEC.

The duty of honesty that I describe does not just relate to the bond offering itself, it relates to the entire flow of information in the marketplace. (Call the SEC.)

As recently as last month, we can see a major municipal document that just brims upfront with "crap" that went to the state and federal governments. (The IWWI Plan).

While the Integrated Wet Weather Improvement Plan might be a fine technical document, it is also a document loaded with PR spin and fails to disclose that the City just, more or less, gave its major off-book asset away.

It is a sort of Oliver Twist narrative of the poor, but deserving. Please, Sir, we can't afford all that new plumbing (we gave all of our wealth away).

As I have demonstrated with numerous City documents over the past 2 years, there is no legitimate basis to misrepresent public financial issues to either the citizens or the courts.

No one takes what I write seriously and my professional reputation has now been widely defamed on the Internet. Why bother?

[Stan Austin]

Mr. Kindt-- I understand. Maybe it's time to "lawyer up" for some individuals. Stan Austin

[Stan Austin]

He'res another, general, non specific querie- is it the duty of a law director to advise city employees and elected officials of potential legal jeopardy?

[Meg Ostrowski]

So, is it a “crime” not to think for yourself or just a liability if you open your mouth?

[Jim O'Bryan]

So, is it a “crime” not to think for yourself or just a liability if you open your mouth?

Lakewood was known for open thought, ingenuity, knowledge, and education. Since the FitzGerald days and nows in the Summers regime, open thought, happiness, intelligence is frowned on. Smart people run off by a group of people that only allow happiness when you are celebrating with them, or more to the point, celebrating them.

We just saw firsthand the city bullied into the worst deal in Lakewood's history, by the worst mayor in Lakewood's history, with the help of the worst Law Director in Lakewood's history and a Finance Director, that prefers lying to facts. All backed up by flunky sycophants ready to shout down people of thought, intelligence, and experience, with threats.

This City Administration has gotten to be everything wrong in people in power.

.

[Mark Kindt]

He'res another, general, non specific querie- is it the duty of a law director to advise city employees and elected officials of potential legal jeopardy?

So, is it a “crime” not to think for yourself or just a liability if you open your mouth?

There a plenty of lawyers and law degrees at City Hall. They've just been through four or five public interest lawsuits.

It is not unreasonable for them to insist upon financial and factual accuracy in municipal documents. In fact, it is their duty.

With this Supreme Court opinion, non-municipal third-parties, such as consultants and outside law firms might be "at risk" for claims stemming from material financial misstatements in public documents.

The Lorenzo case is about just a couple of emails that misrepresented a $400,000 company as a $10,000,000 company.

Some of the financial representations that I have written about previously are vastly larger than these amounts and there is probably quite a bit of third-party email related to them.

Now, as a third-party, under the Lorenzo decision, it would be prudent to verify financial representations that you are receiving from your client, when that client is a participant, like Lakewood, in the securities markets.

Like I said, this would be boring.

[Stan Austin]

Now here's a whatchamacallit (that's an official legal term) Is a law director in jeopardy if that person doesn't advise clients mayor/council of possible criminal repercussions?

[Mark Kindt]

He'res another, general, non specific querie- is it the duty of a law director to advise city employees and elected officials of potential legal jeopardy?

So, is it a “crime” not to think for yourself or just a liability if you open your mouth?

There are plenty of lawyers and law degrees at City Hall. They've just been through four or five public interest lawsuits.

It is not unreasonable for them to insist upon financial and factual accuracy in municipal documents. In fact, it is their duty.

With this Supreme Court opinion, non-municipal third-parties, such as consultants and outside law firms might be "at risk" for claims stemming from material financial misstatements in public documents.

The Lorenzo case is about just a couple of emails that misrepresented a $400,000 company as a $10,000,000 company.

Some of the financial representations that I have written about previously are vastly larger than these amounts and there is probably quite a bit of third-party email related to them.

Now, as a third-party, under the Lorenzo decision, it would be prudent to verify financial representations that you are receiving from your client, when that client is a participant, like Lakewood, in the securities markets.

Like I said, this would be boring.

Now here's a whatchamacallit (that's an official legal term) Is a law director in jeopardy if that person doesn't advise clients mayor/council of possible criminal repercussions?

Mr. Austin, if I was an elected official or public employee in Lakewood, I would make it a point to rely upon my own private attorney for such determinations.

As I have pointed-out elsewhere, when council-members vote on the implementation of the Master Agreement, they need to evaluate whether or not they might have a conflict-of-interest from prior associations.

There are no situations in which an elected official or a public employee can make quantitative misrepresentations about public or even quasi-public financial matters.

[Mark Kindt]

Here Is A Perfect Example Of The Lorenzo Problem

In its IWWI Plan. the City of Lakewood has recently represented to state and federal regulators that the redevelopment of the former hospital site is a $75M to $100M investment.

Now, if we look at one of the key underlying documents related to the solicitation of that redevelopment investment, we can see a perfect example of a third-party innocently conveying erroneous financial information on behalf of the City of Lakewood to potential redevelopment bidders. (I am not suggesting that this was done in any way other than in error.)

This is similar to what occurred in the Lorenzo case. --An intermediate party conveyed erroneous information.

I have attached the relevant page from the 472-page Phase I environmental report that bidders had access to during the City's redevelopment RFP solicitation process.

At the time this document was prepared, the City of Lakewood had not conducted an appraisal of the former hospital site, nor had it established a fair market price, nor had the property been sold.

The statement on this page in the Phase I Report, a key document to potential bidders, was completely erroneous at the time it was released.

(Don't say that I didn't warn you that this would be boring.)

Lakewood-Hospital-Phase-I-ESA 11.jpg (312.28 KiB) Viewed 4783 times

[Stan Austin]

And why--- when the City of Lakewood "once" owned the Lakewood Hospital is now down to number 4 on the default list on an enterprise/property in which we were 100% owners. Shrewd property management.