The Securities and Exchange Commission has charged the city of Victorville, its assistant city manager and others of fraud. The agency says the city, an airport authority and the investment banking firm that underwrites its bonds inflated property values to fund redevelopment projects at the former George Air Force Base.
The SEC’s complaint alleges that between 2006 and 2008, the Southern California Logistics Airport Authority, controlled by the city of Victorville, sold municipal bonds to finance several redevelopment projects, including the construction of a power plant and four new airplane hangars on the former Air Force base. Those bonds depended on tax increases “attributable to increases in the assessed value of property in the redevelopment project area,” the SEC explained in a statement.
In issuing those bonds, the SEC alleges Victorville Assistant City Manager Keith Metzler and the underwriter of the bonds, investment banking firm Kinsell, Newcomb and De Dios, valued the hangars at $65 million, even though they knew the San Bernardino County assessor had valued them at half that amount.
According to the SEC statement, "The inflated figure allowed the Airport Authority to issue substantially more bonds and raise more money than it otherwise would have. It also meant that investors were given false information about the value of the security available to repay them."
In addition, the SEC says its investigation found that Kinsell, Newcomb and De Dios misappropriated more than $2.7 million in bond proceeds meant for the building of the airplane hangars.
Jeff Kinsell, owner of Carlsbad-based Kinsell, Newcomb and DeDios, says the SEC’s allegations against his firm are without merit that the firm is eager to prove it in court. He claims the $65 million value was based on construction costs.
"That city undertook ... a number of projects," Kinsell said of Victorville. "The airplane hangars was the only one that was completed, and it was completed at cost and on time."
The SEC says it’s seeking ill-gotten gains and financial penalties and permanent injunctions against all of the defendants.
A spokesperson for the Victorville City Manager's office said a statement would be issued late Monday.