(June 21)  LOS ANGELES—The city of Victorville, its airport authority, and assistant city manager Keith Metzler have responded to the U.S. Securities and Exchange Commission’s April 29 charges of fraud and demands for restitution with motions seeking to dismiss several of the allegations and request for payment.
Terree Bowers of the Los Angeles-based law firm Arent Fox represents Victorville, the Southern California Logistics Airport Authority (SCLAA), and Metzler, who fills the dual roles of assistant city manager and  executive director of the airport authority, all of whom were charged in April by the SEC.  Also charged were  Kinsell, Newcomb & DeDios Inc., the underwriter for bond offerings sold in conjunction with the effort to develop the airport, that company’s owner, Jeffrey Kinsell, and Kinsell, Newcomb and DeDios investment banker Janees Williams.
The airport authority was formed by the city of Victorville to facilitate the conversion of the former George Air Force Base, which was shuttered by the Department of Defense in 1992, into a civilian airport. SCLAA, which has as its board of directors all five members of the Victorville City Council, issued bonds which were sold to investors to generate revenue to be used in making the base’s civilian use conversion.
The SEC alleges that fraud was committed by the defendants when the proceeds from those bond sales were diverted to uses other than was specified in the bond documents and representations made to the bond purchasers, specifically with regard to proceeds from bonds issued between 2006 and 2008.
The complaint consists of nine claims for relief and one prayer for disgorgement. The authority is named in the first two claims for relief. Kinsell, Newcomb and DeDios (KND) is named in the third, fourth and eighth claims for relief. KND and Jeffrey Kinsell are named in the fifth and sixth claims for relief. Victorville, Kinsell, Williams and Metzler are named in the seventh claim for relief.  Jeffrey Kinsell and Williams are named in the ninth claim for relief.
In the prayer for disgorgement, which is a request for restitution of ill-gotten profits from security law violators, all the parties are named.
On behalf of the city, the authority and Metzler, Bowers last week filed a motion to dismiss the first, second, and seventh claims for relief, and to dismiss the prayer for disgorgement. In his filing Bowers asserted “the complaint fails to state a claim for these violations.” The SEC’s first and second claims cite fraud in connection with the purchase or sale of securities; the seventh claim alleges aiding-and-abetting violations of the Exchange Act.
According to Bowers, a former U.S. Attorney, Metzler “did not violate the federal securities laws.”
The case involves four airport hangars that Victorville stated in the official statement for the April 2008 bond offering were worth $65 million. The county assessor later valued the hangars at $27.7 million. The SEC alleges that the authority used the inflated estimated values to mislead the investors.
“Even if its allegations were true, the alleged $37.3 million inflated value ultimately boils down to only a $200,000 differential in tax increment, less than 1% of the $22.6 million tax increment used as security for the bonds,” according to Bowers. “The authority’s alleged misstatement was not material. The SEC cannot state a claim of aiding and abetting against the city.”
The next hearing on the matter is set for September 16 before Judge John A. Kronstadt in U.S. District Court in Los Angeles.