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SEC Asked to Probe Municipal Bond Issues

Securities: California Treasurer Fong says nine recent deals were sold 'in violation of state laws.'


In an usual move, California Treasurer Matt Fong has called on the U.S. Securities and Exchange Commission to investigate the legality of several municipal bond issues, including millions of dollars in bonds sold for a project in Calabasas and others sold by an American Indian tribe in Palm Springs.

The move is part of increased vigilance of the municipal bond industry on the part of Fong and other state and federal officials in the wake of Orange County's bankruptcy filing in 1994.

In a Sept. 10 letter to SEC Chairman Arthur Levitt, Fong said nine recent bond deals in California underwritten by the firm Pacific Genesis Group were sold to hundreds of investors "in violation of state laws for essentially private purposes associated with land development projects."

The SEC is the federal agency that regulates the nation's $1.3-trillion municipal bond market.

Phone calls to Pacific Genesis Wednesday went unanswered.

The bond deals "violated the letter and spirit" of state law and "also threaten the municipal securities market in general," Fong said.

"Fong's action is certainly unusual but it recognizes that if you're going to have a so-called self-regulatory industry, someone has to step up to the plate," said Dennis Walters, publisher of CalBond Jounal, a newsletter in Ojai.

"From Day One, many people in the industry have been extremely concerned about these deals," he said.

The deals include $6.1 million in bonds sold in February by the Malibu Canyon Public Financing Authority to buy 100 acres for open space as part of the 207.5-acre residential and retail project called Calabasas Center.

Also included is a $10-million bond issue sold by the California Desert Public Financing Authority, which includes the Shoalwater Bay Indian Tribe, to acquire 160 acres for a golf course and 160 acres for open space.

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