Forum investors may get more money

Forum investors may get more money

Berg, Joel

Under a provision of the Sarbanes-Oxley Act, investors can take home a larger share of penalties paid by companies involved in securities-fraud violations.

That means bond investors in the Forum Place office building could get more money, depending on the outcome of allegations made by the U.S. Securities and Exchange Commission.

On April 26, the SEC alleged securities; violations were committed by firms and people involved in issuing bonds worth $75.35 million to finance the purchase of Forum

Place by the Dauphin County General Authority. The authority has defaulted on scheduled bond payments.

The SEC alleged Dauphin County-based Public Finance Consultants Inc. and its president, Robert Fowler, failed to tell prospective bond investors key information about the building. The agency also charged Philadelphia-based Dolphin & Bradbury Inc. and its chief executive officer, Robert J. Bradbury.

Public Finance was the authority’s financial adviser. Dolphin & Bradbury was the bond underwriter.

In particular, the SEC alleged, the firms failed to tell prospective bond investors a major tenant in Forum Place, the Pennsylvania Department of Transportation, was scheduled to leave in 2001. The building has been half-empty ever since.

Efforts to reach Bradbury were unsuccessful. Fowler, 52, disputed the SEC allegations.

Several lawyers reviewed the bond deal’s supporting document and no one raised a red flag, he said.

“At no time did (Public Finance Consultants) or myself defraud any investors regarding the sale of the bonds. We believe that the SECs allegations are groundless, and we intend to vigorously contest them,” said Fowler.

The SEC wants both companies to pay back fees they earned from the bond sale, said Mark R. Zehner, 44, regional municipal securities counsel for the U.S. Securities and Exchange Commission. He works in the agency’s Philadelphia office.

Public Finance earned about $102,000, according to the SEC. Dolphin & Bradbury earned $753,500, the agency said.

The SEC also is seeking civil fines from Dolphin & Bradbury, which is registered with the SEC to sell bonds, Zehner said.

The agency can’t seek fines from Public Finance because the firm isn’t SEC-registered, Zehner added. The SEC doesn’t regulate firms that only advise bond issuers.

Traditionally, civil penalties were paid to the U.S. Treasury, Zehner said. But under Sarbanes-Oxley – best-known for tightening corporate accounting rules – those penalties may go to investors in cases where the SEC also orders “disgorgement.”

Disgorgement refers to companies paying back fees or other gains from their allegedly fraudulent behavior. Those payments typically have gone to burned investors.

An administrative law judge must hand down a ruling in the Forum Place matter within 300 days, Zehner said. He expected a hearing to be scheduled this summer.

If either side is disappointed with the judge’s decision, they can appeal to the commission. The commission’s ruling can be appealed to the federal court system, Zehner said. The SEC reached a separate agreement with the Dauphin County General Authority. In its order, the SEC found the authority violated securities laws that prohibit fraudulent conduct in the sale of securities such as bonds.

The authority disagreed with the SEC findings, but the authority did not dispute them either, said Charles Zwally, the authority’s solicitor.

The authority also agreed to a cease-and-desist order. That means the authority said it would abide by securities laws in the future, Zwally said. If the authority violates such laws in the future, it could face a heavier burden than if it hadn’t been investigated, he said.

The SEC agreed to not fine or otherwise penalize the authority, Zwally said. The authority was generally satisfied with the investigation, he added.

The authority’s board currently is different than it was when it bought Forum Place and a hotel in Pittsburgh. The authority might purchase real estate in the future, Zwally said. But, its appetite will be limited.

“The current board’s view is that any future projects will have a governmental focus,” Zwally said. “I don’t think the current board will be purchasing office buildings.”

Copyright Journal Publications Inc. May 07, 2004

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