The commission, which
The SEC’s suit asks the court to enter an order prohibiting the company and its managing partner from committing a similar violation in the future and seeks forfeiture of Comer Capital’s “ill-gotten gains” and civil monetary penalties.
In a related action, the agency announced a settlement agreement with the bond’s underwriter, IFS Securities, which it alleged had “willfully” violated rules prohibiting “deceptive, dishonest, or unfair practice.”
“The Harvey Public Library District was ill-served by the financial professionals involved in this bond offering,” Joel R. Levin, director of the SEC’s Chicago Regional Office, said in a statement. “(Our) actions demonstrate that we will hold municipal advisors and municipal underwriters accountable when they do not meet their obligations to municipal issuers under the federal securities laws.”
IFS, which did not admit or deny the SEC’s allegations, agreed to pay $50,000 in civil penalties and hire an independent compliance consultant to review company policies and procedures, according to the terms of the settlement.
An IFS representative, speaking on behalf of the company’s president, declined comment.
It’s unclear how much, if any, of the potential penalties and forfeitures will be returned to the library district, but the SEC generally attempts to restore funds to parties negatively affected by improper financial dealings.
Jim Kopecky, an attorney for Comer Capital Group and its managing partner Brandon Comer, said his client denied any wrongdoing and intended to fight the SEC’s lawsuit.
“They have it wrong,” Kopecky said. “Unfortunately, (Brandon Comer) is taking a hit to his reputation that he does not deserve and he intends to fight this and win.”
The lawsuit, filed Thursday in U.S. District Court, accuses Mississippi-based Comer Capital and its 37-year-old managing partner namesake of failing to adequately represent the district’s interests during the bond offering process, as they were legally obligated to do.
Hired to advise the library district in its selection of an underwriter for the bonds and to ensure it obtained a competitive price for the bonds, Comer instead deferred entirely to the underwriter — IFS Securities — on the sale and pricing of the bonds, the complaint alleges.
IFS, which had no experience underwriting bonds like the library district’s, ended up inadequately marketing the bonds, mismanaging the order period for the sale of the bonds and ultimately selling the bonds at a price that was “not fair and reasonable” to the district, federal authorities claim.
Antonia McBride, the Harvey library’s interim director, declined comment on the lawsuit, saying she had yet to review it.
The library district issued the bonds in early 2015, nearly four years after Harvey voters approved a referendum that sought $16.2 million to construct a new library building.
In the intervening years, library officials scaled down the project’s scope and settled on borrowing $6 million to fund an expansion of the existing library that would be repaid through property taxes.
It was the first time the Harvey library district had ever issued bonds and its director, a librarian, had no experience with the bond offering process, according to the federal complaint.
Rather than initially hiring a financial adviser to help shepherd them through the bond issuance, as is considered best practice, the library board instead relied on the advice of a securities dealer whom then-board president Keith Price knew from his time on the Harvey Park District Board, the complaint states.
Alvin Boutte, Jr., whose license was suspended by the state in 2011 for providing unsound investment advice to the Illinois Student Assistance Commission, advised the board on a volunteer basis at first before being hired as their underwriter to market and sell the bonds to investors, meeting minutes show.
IFS — which employed Boutte at the time — subsequently recommended the library board hire Comer Capital, a company it had worked with on other bond offerings, to serve as the board’s financial adviser on the deal, according to federal authorities.
Neither company was selected through a competitive bidding process, records show.
Typically, the financial adviser — which, unlike the underwriter, has a fiduciary duty to the issuer — helps select the underwriter, not the other way around.
The library board’s “atypical” arrangement in this case was “essentially the opposite of the recommended practice,” according to federal authorities.
The relationship between the adviser and the underwriter — which typically serve adversarial roles — grew even more complicated when Comer asked IFS to help it secure higher fees from the library district, the SEC complaint alleges.
Federal authorities called Comer’s request that IFS intercede with the district on his company’s behalf “inappropriate” and “a breach of fiduciary duty,” and said it created a conflict of interest because Comer Capital — whose fee jumped from $15,000 to $20,000 and then to $40,000, even though “no additional duties or obligations were added to the agreement to justify the increase in fee” — now “owed” IFS.
The SEC further faulted Comer Capital for retaining IFS to underwrite the district’s bond issue — which it was not required to do — allegedly without making an effort to assess the company’s experience or qualifications, inquiring into the district’s process for hiring them or asking whether the district had considered other underwriters.
IFS, which the lawsuit claims did not have experience as a sole or lead underwriter of long-term, credit-rated bonds like the library district’s, struggled to find any interested buyers and ultimately sold the bonds at a price that was “not fair and reasonable to the district,” according to the complaint.
Federal authorities blamed the outcome of the sale on IFS’ relative inexperience and alleged mismanagement of the bond offering, and faulted Comer for deferring to the underwriter rather than intervening to protect the library district from entering into a bad deal.
“The District is anticipated to pay at least $500,000 more in interest over the life of the bonds than it would have if the Bonds had been sold at a fair and reasonable price,” the suit claims.
Kopecky rebutted the SEC’s claims about Comer and said his client had done nothing wrong.
“It’s because of his efforts that the library (expansion) was built,” said Kopecky, who described Comer as “a kid who grew up in Gary, Indiana and has spent his career helping distressed communities like Harvey.”
The lawyer said the SEC’s case amounted to a specious argument that Comer should have concluded IFS wasn’t up to the job.
“To say that a different underwriter could have done a better job, that’s pure speculation,” he said. “All it’ll do will be to scare other people away from doing bond issuances for places like Harvey.”
Kopecky also denied Comer had sought IFS’ help to negotiate a fee increase from the library district, as federal authorities alleged, and questioned why his client would jeopardize his career over a $20,000 payday.
He said Comer’s fee increase was due to an expansion in the scope of his work.
Despite the SEC’s allegations, Price, the former Harvey library board president, said he wouldn’t rush to judgment about the work that any of the library district’s hired financial professionals performed on the bond offering.
“Everyone is basically innocent until proven guilty,” he said. “Hopefully they didn’t do anything wrong, but if they did they should be held accountable.”
Price said he still believed the library got a “bad rate” because of
“When you heard the name Harvey at that time and that hotel deal had hit the news, I feel like that’s really the reason why we ended up like we did,” Price said.
He said that, given the circumstances, voting to issue the bonds at a rate the advisers assured them was the best option at that time was all the board could do.
“All I wanted to do was give the voters what they voted for,” Price said. “And we still have probably the best looking library in the whole south suburbs.”
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