The City of Victorville, Calif. and Kinsell, Newcomb & DeDios (KND)
are among several defendants to be charged with defrauding investors by
selling municipal bonds based on inflated property valuations. KND owner
J. Jeffery Kinsell, KND Vice President Janees L. Williams, and Victorville
Assistant City Manager and former Director of Economic Development Keith
C. Metzler also were named in the SEC’s complaint.
According to the complaint, the Southern California Logistics Airport Authority,
which is controlled by the City of Victorville, issued millions of dollars
in tax increment bonds to finance several redevelopment projects, including
the construction of four airplane hangers on a former Air Force base.
The bonds were underwritten by KND and solely secured by property-tax
increases attributable to increases in the assessed value of property
in the area.
When the Airport Authority didn’t have enough money to complete the
project, it was forced to issue additional municipal bonds, which the
SEC claims were based on inflated property valuations.
"The principal amount of the new bond issue was partly based on Metzler,
Williams, and Kinsell using a $65 million valuation for the airplane hangars
even though they knew the county assessor valued the hangars at less than
half that amount," stated the SEC in the release.
“The inflated figure allowed the Airport Authority to issue substantially
more bonds and raise more money than it otherwise would have. It also
meant that investors were given
false information about the value of the security available to repay them.”
The complaint further alleges that KND, Kinsell, and another of Kinsell’s
companies misappropriated more than $2.7 million in bond proceeds.
According to the SEC, Kinsell, through KND Affiliates, LLC, stepped in
to manage the hangar construction project after the project's original
contractor was accused of fraud.
Though Kinsell had no construction experience, the Airport Authority agreed
to pay KND Affiliates a construction management fee of two percent of
the remaining cost of construction.
Apparently, that wasn’t enough. According to the SEC, “Kinsell
and KND Affiliates took an additional $450,000 in unauthorized fees to
oversee the construction and took $2.3 million in fees that the Airport
Authority was unaware of and never agreed to, purportedly as compensation
to ‘manage’ the hangars.”
In its complaint, the SEC says it is seeking permanent enjoinders, disgorgement
of ill-gotten gains plus prejudgment interest, and payment of civil penalties.