Victorville Rejects Bond Firm’s Claim

(September 21)  The Victorville City Council has denied a claim by the firm that marketed its bonds demanding the city cover the company’s expenses in responding to questions put to it by a series of investigators looking into the city’s financial transactions.
Kinsell, Newcomb & De Dios, a Carlsbad, California–based firm which provides investment banking, advisory and underwriting services to municipal entities, handled Victorville’s bond transactions throughout the 2000s. When the FBI, Securities & Exchange Commission and the San Bernardino County Grand Jury interested themselves in a number of issues pertaining to city finances, including representations made to investors and how the proceeds from issued and sold bonds were actually spent, employees with Kinsell, Newcomb & De Dios were interviewed, indeed interrogated, and subpoenaed to provide backup documentation with regard to those bond sales and expenditures.
Among the issues explored in those inquiries were financing arrangement for four hangars built at Southern California Logistics Airport, two city-sponsored power plant projects – the  Victorville 2 and Foxborough electricity generating stations – which ate up well over $150 million in development costs but ultimately were never completed, and the rerouting of bond money from projects that money was originally intended for to other undertakings.
In a letter to the city on behalf of Kinsell, Newcomb & De Dios, attorney Kenneth Lounsbery states “Kinsell, Newcomb & De Dios’s costs have steadily mounted as it continues to defend its own and the city’s interests” and that the firm had saved city officials’ bacon by stopping hard charging officials and prosecutors dead in their tracks. “After many months of document production and communication with regulatory agencies, Kinsell, Newcomb & De Dios believes all issues have been addressed and adequate proof provided to such agencies that all rules, regulations and requirements were satisfied,” Lounsbery wrote.
Moreover,  Lounsbery asserted that  Kinsell, Newcomb & De Dios’s work on behalf of the city had been crucial to the city’s efforts to develop four hangars at the airport, having “undertaken an extraordinary set of responsibilities” in doing so. “These are assets for which the city has Kinsell, Newcomb & De Dios to thank,” Lounsbery said. “The city’s legal interests have been defended and protected against challenges launched by the original developer who brought the hangar construction project to a calamitous halt. Despite the recession, the downturn in the city’s fortunes and the associated stress, Kinsell, Newcomb & De Dios has previously held a good professional relationship with the city.”
In his letter, which was dated August 23, Lounsbery did not delineate a specific amount owed by the city to Kinsell, Newcomb & De Dios for responding to the investigative inquiry, but he did reference a request for indemnification previously provided to the city.  He implied that Kinsell, Newcomb & De Dios had been treated shabbily by the city’s attorney, Andre DeBortnowski. He further suggested that De Bortnowski’s action, or lack thereof, with regard to the bond sales had created problems for the city.
“The heart of   Kinsell, Newcomb & De Dios’s response to the [Securities & Exchange Commission] inquiry is its ‘due diligence’ that all material information was disclosed – which due diligence is curative of any perceived flaw in the bond proceedings,” Lounsbery wrote. “Your city attorney served as co-disclosure counsel with respect to the issuance of the bonds relevant to this inquiry. Thus, it was the attorney’s duty to formally document those facts disclosed by Kinsell, Newcomb & De Dios. The extent to which such facts may not have been disclosed, or incompletely disclosed by counsel at the time will become a factor in the analysis of the propriety of all events related to the completion of the hangar projects. As the city analyzes this claim, it must consider the potential for a conflict between the duty owed to the city by the disclosure counsel, and the role the same counsel could or should play in the claims process.”
“The preliminary claim previously filed by Kinsell, Newcomb & De Dios was forwarded to your city attorney, who responded with a rationale for recommending denial. Communication has been made to the city attorney concerning this indemnity. We and Kinsell, Newcomb & De Dios have been frustrated by the delays and lack of response from that office,”  Lounsbery wrote. Calling for the city to respond with what he termed “appropriate dispatch,” Lounsbery said he would initiate a lawsuit on Kinsell, Newcomb and De Dios’ behalf if the city did not indemnify the city within 45 days of the date of the letter.
Despite the prospect of that lawsuit, the city council denied the claim.
The city council’s decision to make that denial, the Sentinel has learned, was influenced by the suggestion that Kinsell, Newcomb & De Dios in some measure invited the Securities & Exchange Commission’s scrutiny of Victorville through its own action.
One issue investigators latched onto was alleged efforts by Kinsell, Newcomb & De Dios’s executive vice-president, J. Jeffery Kinsell, to filter, i.e., launder, campaign contributions to Victorville city officials.
Another area of concern for the Securities & Exchange Commission was that Kinsell, Newcomb & De Dios had a potential conflict of interest with regard to some of the work it did on the city’s behalf.  An element of the Securities & Exchange Commission’s investigation pertains to the existence of a relationship between Tom Barnett, one of the principals in Inland Energy Group, and J. Jeffery Kinsell. Inland Energy Group was centrally involved in the Victorville 2 Power Plant project and provided consulting services with regard to the Foxborough power plant project. Regulators are seeking to determine if the city’s contractual relationship with either Kinsell, Newcomb & De Dios or Inland Energy and Barnett resulted in kickbacks between those parties, the misdirection or redirection of any investment capital, the loss thereof or incomplete disclosure to investors.

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