City, former finance director settle case with SEC

The city of Rochester has resolved its case with the Securities and Exchange Commission. The lawsuit against the city and its former finance director, Rosalind Brooks-Harris, is now closed.

In 2022, the SEC charged the city, Brooks-Harris and Everton Sewell, former chief financial officer of the Rochester City School District, with misleading investors in a $119 million bond offering. Also charged in the case were Rochester’s municipal advisor Capital Markets Advisors LLC, its principal Richard Ganci and co-principal Richard Tortora.

The SEC alleged that in 2019 the defendants misled investors with bond offering documents that included outdated financial statements for RCSD and did not indicate that the district was experiencing financial distress due to overspending on teacher salaries, SEC documents show.

“We allege that the Rochester City School District’s financial health was important to investors, who were counting on the district as the expected source of repayment,” said LeeAnn Ghazil Gaunt, chief of the Enforcement Division’s Public Finance Abuse Unit, in April 2022. “As described in our complaint, these defendants failed to inform investors of the serious financial difficulties the district was experiencing at the time of the offering.”

When the charges were announced in 2022, the SEC said Sewell agreed to settle by consenting, without admitting or denying any findings, to a court order prohibiting him from future violations of antifraud provisions and from participating in future municipal securities offerings. He also was required to pay a $25,000 penalty. 

City officials said the settlement, endorsed today by Elizabeth Wolford, chief U.S. District Judge for the Western District of New York, requires no monetary payment and no monitorship. The city and Brooks-Harris have agreed to forward-looking injunctions only, the city says.

As far as the city and its outside counsel know, every municipal case settled by the SEC to date has required payment of civil penalties, engagement of an expensive monitor, or both. Those terms are not required as part of this settlement.

“We are extremely pleased with this outcome,” says Mayor Malik Evans. “This completes a long legal argument that we felt confident in pursuing. I am especially proud that the city stood by its promise to protect its employees, regardless of whose administration they worked in.”

The resolution is a win for the city. It often stresses that RSCD operates independently of the city’s fiscal oversight. Though the city makes mandatory budgetary commitments each year, and is legally obligated to issue debt on RCSD’s behalf, the district is a separate legal and municipal entity, officials say.

“This precedent was worth fighting for, for city employees,” says Councilmember Mitch Gruber, chair of City Council’s Finance Committee. “No city employee should face financial penalties for situations that are squarely out of their control.” 

“This is an exceptionally positive result of the city’s focused and consistent efforts in this case,” says Brian Feldman, partner at Aurelian Law, the city’s external legal counsel for the SEC litigation. “These favorable terms seem to be unprecedented.”

Officials say that as part of the settlement, the city neither admitted nor denied the SEC’s allegations.

In April, the U.S. District Court granted the SEC partial summary judgment against CMA, Ganci and Tortora. The court found that the defendants breached fiduciary duties owed to their municipal entity clients and violated Municipal Securities Rulemaking Board rules. The order granting summary judgment resolved the SEC’s claims against Tortora.

Smriti Jacob is Rochester Beacon managing editor. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected]. 

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