On September 16, 2021, the Securities and Exchange Commission (the “Commission” or “Plaintiff”), represented by Jessica Ashley Adams, attorney at SEC’s LA regional office, filed a civil enforcement action against Karen Marie Michel (“Michel” or “Defendant”), seeking injunctive relief along with payment of civil penalties for the alleged deceptive course of business by Defendant. This case was filed in the U.S. District Court in the Southern District of California with Judges M. James Lorenz and Bernard G. Skomal presiding.
In the complaint Plaintiff alleged that, “This matter involves a deceptive course of business, including material misstatements and omissions, by Karen Michel, the former Chief Financial Officer of Sweetwater Union High School District (“Sweetwater” or “the District”), in connection with the sale of $28 million of municipal bonds in April 2018 offered by the District. The bonds were to be secured by and payable from ad valorem property taxes assessed on taxable properties within the school district and collected by the County of San Diego. The purpose of the bonds was to fund certain of Sweetwater’s capital projects. In the documents Sweetwater and Michel used to offer the bonds to investors – a Preliminary Official Statement and a Final Official Statement (together, the “Offering Documents”) – Michel included misleading budget projections which indicated that the District could cover its costs, when in reality the District’s finances were severely strained.”
Plaintiff further alleged that, “Although Michel was aware of information showing that the projections were untenable, she omitted this fact when she helped prepare and reviewed the Offering Documents, which indicated that Sweetwater would end the fiscal year with a positive general fund balance of approximately $19.5 million. Months later, when Sweetwater ultimately disclosed its true year-end financial condition, it had to reveal that it had actually overspent its budget by $28 million, and had ended the year with a negative $7.2 million fund balance.”
Plaintiff also alleged that, “The Offering Documents also misleadingly stated that Sweetwater had obtained positive budget certifications for each of its state-mandated reporting periods during the preceding five years and that its budget reporting incorporated current financial information. The omitted information rendered the projections and statements about Sweetwater’s financial performance that were included in the Offering Documents materially misleading. Michel also presented the deceptive budget figures to a credit rating agency in connection with obtaining credit ratings related to the bond offering, and submitted false certifications regarding the accuracy and completeness of the Offering Documents to the team of professionals who worked on the deal.”
There is only one claim for relief laid down by Plaintiff which deals with the alleged violation of Section 17(a)(3) of the Securities Act.
In its prayer for relief Plaintiff has requested the court to issue a judgment permanently restraining and enjoining Defendant and her agents and those persons in active concert or participation with any of them from directly or indirectly violating Section 17(a)(3) of the Securities Act [15 U.S.C. § 77q(a)(3)]. Plaintiff also requested the court to issue a judgment permanently restraining and enjoining Defendant from participating in any offering of municipal securities provided however, that such injunction shall not prevent Defendant from purchasing or selling municipal securities for her own personal accounts. Plaintiff also requested the court to order Defendant to pay civil penalties pursuant to Section 20(d) of the Securities Act.
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Pending - Other Pending
M. James Lorenz
Bernard G. Skomal
Securities and Exchange Commission
Karen Marie Michel
Jessica Ashley Adams
Attorney at Securities and Exchange Commission
44 Montgomery Street, Suite 2800
San Francisco, CA 94104
(#2) Summons Issued. Counsel receiving this notice electronically should print this summons and serve it in accordance with Rule 4, Fed.R.Civ.P and LR 4.1. (fth) (Entered: 09/16/2021)
Civil Cover Sheet
Docket(#2) Summons Issued. Counsel receiving this notice electronically should print this summons and serve it in accordance with Rule 4, Fed.R.Civ.P and LR 4.1. (fth) (Entered: 09/16/2021)Read MoreRead Less
Docket(#1) COMPLAINT against Karen Marie Michel, No Fee Required, filed by Securities and Exchange Commission. (Attachments: #1 Civil Cover Sheet)The new case number is 3:21-cv-1623-L-BGS. Judge M. James Lorenz and Magistrate Judge Bernard G. Skomal are assigned to the case. (Adams, Jessica) (fth) (Entered: 09/16/2021)Read MoreRead Less