By TEREASA NIMS
Sunday Times Newspapers
ALLEN PARK – An investigation into the dealings of two former city officials in the failed Unity Studios project produced no additional defendants than the two who were originally charged last year.
Others were expected Wednesday, but none were added in the Securities and Exchange Commission investigation into the deal that eventually led to the appointment of an emergency manager for the city.
U.S. District Court Eastern District Southern Division Judge Avern Cohn asked on Nov. 7 for others in the Unity Studios project to be brought before the court in the SEC investigation. The investigation produced no further culprits other than former Mayor Gary Burtka and former City Administrator Eric Waidelich.
“Initially, the court was puzzled because of the intense interest of the SEC in disclosure problems in municipal bond officering,” Cohn said. “It wanted to know why in a $30 million fraudulent bond offer, only two unsophisticated municipal officers were charged with wrongdoing and why sophisticated third-party participants had, in the SEC’s view, not been called into account.
SEC claimed Wednesday that the underwriters were not responsible for the misstatements because the bonds were sold by competitive bid.
As to financial advisors, the SEC said that while they wrote the official statements, and as to the parts which were false and misleading, particularly the nature and development of the studio project, the financial advisors relied on what Waidelich or city employees told it.
In the SEC’s words, “The information that the defendant Waidelich supplied the financial advisors was incomplete, false and misleading,” and went on to say:
“The Dodd-Frank Wall Street Reform and Consumer Protection Act established that financial advisors owe fiduciary duties to their municipal entity clients when they provide advice on an issuance of municipal securities. But, the conduct in this case occurred before the enactment of the Dodd-Frank Act and, at such time, under federal law financial advisors did not owe fiduciary duties to issues of municipal securities. In addition, there was no contract in place between the financial advisor and the city stating what services the financial advisor agreed to provide to the city.”
“It would appear that today the State of Michigan lacks a mechanism to review the legitimacy of municipal borrowings before debt instruments are issued,” Cohn said Thursday. “It is therefore fair to say that the State steps in only and after the barn door is closed and the horse escapes.”
Cohn gave the SEC an additional 30 days to continue its investigation into the fraud case that came to light Nov. 6, with charges issued against Burtka and Waidelich. Burtka was ordered to pay $10,000.
The pair were charged with using misleading and outdated budget information to lure investors into a failed endeavor, deemed Unity Studios. Both were ordered not to participate in any municipal bond offerings.
Without admitting or denying the allegations, both consented to the final judgment of inappropriate behavior.
Cohn vacated the charges on Nov. 7, saying that no mention was made in the SEC complaint of financial advisors, underwriters and law firms in connection with the alleged deed. The order was reinstated Wednesday when no one else was deemed to be at fault.
Resident Myra Ingham said this has been a long drawn-out struggle for the city.
“Nobody, in my opinion, wants to see this continue,” Ingham said. “We all want it to go away. It has been a black mark for the city.”
City officials feel about as distraught as residents, noting that they recently sold the Southfield Lease Properties — formerly Unity Studios — for $12 million and they still owe $13 million on it.
Ingham said, “We got screwed.”
For more information about the case go to https://www.mied.uscourts.gov/PDFFIles/14-14278and14-14279Comments.pdf
(Tereasa Nims can be reached at [email protected].)