LOS ANGELES The Securities and Exchange Commission asked officials in Ione, Calif., last week to provide information on two bond issues underwritten by First California Capital Markets Group Inc., a city official told The Bond Buyer.
The city defaulted Oct. 1 on $704,002 in payments on the two 1991 Mello-Roos bond issues.
As reported, three other bond financings underwritten by First California are also being investigated by the SEC.
An SEC enforcement official visited Ione last Thursday, and was "looking through our files" for information on a February 1991 issue of $7.5 million of Series 1989-2 special tax bonds, and a June 1991 issue of $6.55 million of Series 1989-1 special tax bonds. Ione city administrator Randy L. Johnsen said Monday.
In addition, Daniel C. Bort, a lawyer for Orrick, Herrington & Sutcliffe, which is assisting lone in pending foreclosure actions related to the MelloRoos bonds. said yesterday: "The SEC called me [Monday] and wanted to look at my files" relating to lone.
Bort said his initial reaction was, "Come on over and look." but he told the SEC official that he would need "formal approval from the powers that be here, [although] I'm not expecting that to be a problem."
First California officials could not be reached yesterday to comment on the SEC's lone inquiry.
As previously reported, First California chief financial officer Arch Zellick said his company was asked last July by the SEC to provide documents relating to three hnderwritings the firm conducted in the California cities of Wasco and Avenal, and in Nevada County, Calif.
The Wasco public financing authority, using Marks-Roos proceeds, bought $3.5 million of the Nevada County bonds and $1 million of the Ione Mello-Roos bonds, while the Avenal public financing authority bought $1 million of the Nevada County Mello-Roos bonds and $1 million of the Ione Mello-Roos bonds, market sources said.
Nevada County has defaulted on two separate scheduled bondholder payments due March 1 and Sept. 1, and Ione defaulted on $740,002 in payments due bondholders Oct. 1.
Regarding the lone bonds, Bort said $440,327 is due to holders of Series 1989-2 bonds, of which $125,000 is principal and the balance is interest, and $299,675 is due to holders of the Series 1989-1 bonds, of which $20,000 is principal and the remainder is interest.
Johnsen said the SEC investigator's "only statement to me when he came was that they were doing something in [the cities of] Wasco and Avenal, and would it be okay for them to go through our files. My answer was that our files are public."
The SEC official indicated that the purpose of the inquiry was "whether some due diligence had been done by Wasco and Avenal about the status of our bonds before they purchased them, and whether they had made inquiries about the continuing status," Johnsen said.
Johnsen said official statements, resolutions, and other materials were "all made available" to the SEC investigator. "We have cabinets full on this project .... What he looked at was his choice."
Reached yesterday for comment. Robert Singletary, SEC enforcement chief for the agency's San Francisco district office, said, "Our policy is not to confirm or deny the existence of an investigation, even when others confirm it for the press."
The SEC is in charge of enforcing federal securities laws, which prohibit individuals from misrepresenting or omitting material facts in connection with the sale of securities. Violators can be fined, disbarred, or subjected to other penalties.
At issue in lone is the city's formation in 1989 of two geographically identical Mello-Roos community facilities districts to fund improvements at a mixed-use real estate development project then called Country Club Estates.
Mello-Roos financings have been used commonly over the last decade in California to help finance public improvements, particularly in newer developments. The Mello-Roos bonds are secured by special taxes levied on property owners.
Ione, a city of 7,000 located in the Sierra foothills of Amador County southeast of Sacramento, had never issued long-term debt until this transaction, Johnsen said.
In lone, most of the Mello-Roos proceeds funded public infrastructure within the proposed development, now known as the Castle Oaks Golf and Country Club.
A total of 584 single-family lots have been approved, of which 215 are in the "phase one final map," Bort said.
The project's original owner, Castle Oak Investment Corp., was not able to close escrow on any lots because it was in default to its lender, LIL Hong Kong Ltd., a wholly owned subsidiary of the Long-Term Credit Bank of Japan.
LIL Hong Kong "would not give any partial releases of the deed of trust," Bort said. "Unfortunately, there has never been a special tax payment made on time in the history" of the project, he added.
In August, Ione's Mello-Roos bondholders tentatively approved various indenture amendments to the two districts' bond documents. However, documents were never amended "because bondholder consent was contingent upon a change of ownership" in the districts, Bort said.
A workout package was proposed in which a new developer, Candev Inc., a wholly owned subsidiary of Canlan Investment Corp. of Vancouver in British Columbia, would finish the project started by Castle Oak Investment Corp.
As part of this proposed restructuring, Candev agreed to make the $740,002 Oct. I bond payments.
But, Bort said, Candev on Oct. 3 withdrew its offer, and the proposed transfer of the real property from Castle Oak Investment Corp. to Candev did not take place, resulting in a default on the bond issues.
On Oct. 11, LIL Hong Kong, "which had the first deed of trust, foreclosed on the property," Johnsen said. "The property was sold to Mansfield Properties USA Inc.. a wholly owned subsidiary of LIL Hong Kong."
Candev last week "came back" and made a written offer to Mansfield Properties. which was rejected. Bort said.
"Mansfield Properties did not make a counteroffer," Bort said. "Mansfield was very disappointed; the Candev offer was much less than LIL Hong Kong was going to get in the [proposed] settlement last month. So I am assuming that [negotiations are] really dead."
Bort said his understanding is that Mansfield Properties has "no immediate intention of paying any taxes
