DALLAS - Ten taxpayers have filed suit charging that $500,000 of a 1987 bond deal by the Oklahoma County Home Finance Authority was illegally used to pay cost of issuance for another transaction.
Filed late last month in Oklahoma County District Court, the action names the authority; its chairman, Hershel Smith; the Bank of Oklahoma, the trustee bank; underwriter Leo Oppenheim & Co.; and bond counsel Fagin, Brown, Bush, Tinney & Kiser and its partners, all of Oklahoma City. No hearing date has been set.
In April, the taxpayers, none of whom is named as a bondholder, asked Oklahoma County District Attorney Robert Macy and the county commission to recover the funds they believed were illegally used.
The county declined, saying it found no improper use of bond proceeds.
"The DA was asked to file this same lawsuit, but he filed a memorandum saying that it was a frivolous claim," said Gary Bush, legal counsel to the home finance authority. "It's not the first time I've heard of this question. These people first raised it three years ago."
In the lawsuit, the taxpayers alleged that $500,000 was improperly used from a $3.12 million issue sold on Aug. 26, 1987. They allege that in October 1988 the authority transferred the funds to the sold in 1988 to pay cost of issuance.
The plaintiffs said the money from the 1987 sale could have been used to reduce the sinking fund of the Series 1987 bonds or to generate additional mortgages rather than pay professionals' fees.
The lawsuit says the use of proceeds violated the Oklahoma Bond Proceeds Act because the authority spent less than 85% of the 1987 bonds for operating expenses and capital projects specified in the official statement. In his findings, the district attorney said he did not believe the act applied to public trusts such as the authority.
The taxpayers, represented by the law firm of Stipe, Gossett, Stipe, Harper, Estes, McCune & Parks, are seeking triple the $500,000 and a ruling that the transfers were illegal.
Lawyers for the plaintiffs declined to comment.
"We've never even been served on the lawsuit, but I'm aware of it," said Robert Lewis, chairman of Leo Oppenheim, the underwriter for the county-created authority. "To my mind, it's a frivolous lawsuit."
County officials referred calls to Mr. Bush, the lawyer at Fagin Brown who serves as counsel to the home finance authority. He said the proceeds were properly used under the indenture, adding, "There's no merit to the lawsuit."
Mr. Lewis said the transfer of proceeds was proper because it was used for a lawful purpose, as specified in the official statement. Further, he said the practice is common among country housing authorities.
Because the 1988 transaction was a Ginnie Mae-backed transaction, there were no surpluses to pay cost of issuance, so the money from the first issue was used.
"If you are selling $50 million of bonds like this, you have to have $50 million for mortgages," he said yesterday. "None of the counties have enough money to pay the cost of issuance up front on their own."
The lawsuit also alleges that the defendants, except for Mr. Oppenheim, violated a state law requiring that a final official statement be filed with the Oklahoma Securities Commission and the state secretary of state's office.
The failure to do so is a misdemeanor, the suit says.
