The Securities and Exchange Commission (SEC) said the capital of the commonwealth withheld critical information about its financial woes from 2009 to 2011. The settlement represents the first time the agency has charged a municipality for “misleading statements outside securities disclosure documents,” according to the SEC.
“In an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances,” said George S. Canellos, the co-director of the SEC’s Division of Enforcement, said in a statement.
“As of March 15, 2013, Harrisburg has found it necessary, on three occasions, to withhold approximately $13.9 million in general obligation debt service payments in order to have sufficient cash flow to meet essential services in the city,” the regulator wrote in the settlement.
From 2008 to 2009, investors traded $87 million in bonds issued or guaranteed by the city, which lied about its financial health: In a 2009 budget, Harrisburg said the city had a triple-A, the highest and safest available, credit rating. Moody’s, however, had downgraded the city’s rating to Baa1, a moderate risk, by December 2008.
The State of the City address in April 2009 called the municipal resource recovery facility a situation that was an “additional challenge” and an “issue that can be resolved.”
Its credit rating fell even further by the end of 2009, as Moody’s gave Harrisburg a Ba2 rating – a “highly speculative” subprime evaluation. Still, in its year-end financial report, the city didn’t mention the low score.
The tale ultimately ends with Pennsylvania’s Gov. Tom Corbett signing legislation declaring the city of Harrisburg under a state of fiscal emergency, after efforts to apply for state and bankruptcy assistance failed in previous years. State-appointed officials have taken over the city’s budget and recovery plan.
By settling with the SEC, the city neither admits nor denies the allegations against them.