WASHINGTON -- The Securities and Exchange Commission is investigating the sales and purchases of bonds issued for one of the most notorious of the failed Colorado metropolitan development districts, bankruptcy documents and knowledgeable sources say.

Investors who bought Colorado Centre Metropolitan District bonds issued between 1985 and 1987 were subpoenaed for information last month by the agency, in the latest development of a probe that began at least a year ago, according to sources familiar with the investigation.

The target of the probe may be Boettcher & Co., a Denver brokerage house that traded in the bonds in the late 1980s, they said. The firm was purchased in 1985 by Kemper Securities Group Inc. and adopted the Kemper name this past July.

The SEC may be investigating whether brokers at Boettcher bought Colorado Centre bonds from investors at the first sign of a problem and sold them to unsuspecting buyers in the secondary market without adequately disclosing risks, sources say. The three Colorado Centre bond issues totaled $25.52 million.

The SEC's probe came to light in December 1991 in a little-noticed paragraph of a bankruptcy agreement in which the district said it would pay back bondholders a part of their original investment.

"The district has been informed that the Securities and Exchange Commission has issued an order directing private investigation and designating officers to take testimony" concerning the Colorado Centre Metropolitan District, the notice in the documents says. "The investigation is being conducted by the Denver Regional Office of the SEC."

John Kelly, associate regional administrator for the Denver office, said he has no comment on whether the agency is conducting an investigation involving Colorado Centre, which is in Colorado Springs.

Saranne Maxwell, assistant general counsel and senior vice president of Kemper Securities in Denver, also had no comment on whether the SEC is investigating the firm. She noted, however, that Kemper is "very pleased" with the outcome of bankruptcy workout efforts for Colorado Centre.

The Colorado Centre bonds were among millions of dollars worth of bonds sold under a system that gave developers in the high-flying 1970s and early 1980s a cheap way to finance the construction of hundreds of homes across the state.

Developers bought land for housing communities and formed district governments to run them. The governments sold bonds to investors, the proceeds of which were used to build the water and sewer lines, roads, and parks that would serve as the infrastructure for thousands of homes.

The bonds were issued under the concept that home owners would pay back the investors through property taxes paid to the metropolitan districts, which received little scrutiny by state regulators. But Colorado's housing market took a dive when the economy collapsed in the late 1980s, and by the early 1990s, many of the districts did not have enough revenues from property owners to make payments on the bonds.

A number of districts, including

Colorado Centre, defaulted on the bonds. And, shellshocked home owners, some of them shown on national television broadcasts such as "60 Minutes," were hit with massively inflated tax bills to cover the deficit.

"My guests is that what you may see is the SEC trying to get into some of the sale of bonds in the secondary market," said one source, who asked not to be identified. He said there have been allegations "that there were Boettcher brokers selling bonds by telling people 'you need to get out of this thing.' The problem is that in other parts of Boettcher, bonds were being sold to new purchasers. My guess is that someone would be looking into that."

Asked why the SEC would need to subpoena bondholders, one source said that bondholders are "not necessarily a friendly party.

"If you got a call from your broker who said I know this thing is in trouble, [then you'd have to assume] that if somebody sells, then somebody buys. There were quite a few secondary purchases after things got bad during 1989. It's just ludicrous."

"It's public knowledge in Denver that the SEC has subpoenaed documents," one lawyer said. "A lot of lawyers in town representing plaintiffs have gotten subpoenas for Colorado Centre documents."

The investigation is believed to be the SEC's first probe into the massive failures of Colorado bonds, which triggered a flurry of reform proposals at the state level.

The defaults also create concern in Washington. Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, wrote SEC Chairman Richard Breeden Jan. 16 requesting that the SEC "look into the facts and circumstances" behind the district bond failures and to advise him if enforcement action is needed. Dingell also wants to know whether the Colorado defaults reflect "systemic flaws" that require new federal rules or laws.

A sub-panel of Dingell's committee, the House Telecommunications and Finance Subcommittee, is expected to hold oversight hearings on the municipal industry next year.

While the SEC was distributing subpoenas, more than 95% of bondholders, trying to put the Colorado Centre default behind them, voted on March 9 to approve a workout plan, which was confirmed a week later by the U.S. Bankruptcy Court for the District of Colorado.

Under the plan, 1985 and 1986 investors could receive as much as $300 in cash on each $1,000 in existing bonds and 1987 bondholders could receive as much as $550 in cash. Under the plan, the bondholders would get more than half of their investment back if they agree to drop further legal claims.

All bondholders also could receive new bonds dated Jan. 1, 1992, totaling $12.7 million designed to discharge the old bonds.

The workout will provide relief to Colorado Centre home owners, whose district tax bills are expected to fall from a whopping $10,000 a year on average to about $350 a year.

"We're big advocates of the workout" process, said James Ruh, a Denver attorney who represents Kemper in the workout. "It's less expensive than litigation.

"Bondholders come out better than when a class action attorney will settle it and then get a lot of fees. The fact that the bondholders and districts and Kemper have all worked together to restructure the bonds is much more economic a resolution than litigation. Everybody comes out ahead."

Another lawyer said, "Bonds have been turned in. New bonds have been issued. Houses are selling. We've passed the uncertainty."

Ruh said Kemper also is negotiating workout plans with bondholders for three other special district issues totaling $35 million, including Roxborough Village Metropolitan District, Triview Metropolitan District, and Cottonwood Water and Sanitation District. He added that the company is in the preliminary stages of negotiation on several other workouts.

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