...the rest of the story.
So, on or around June 18, 2018, Miscione called me and wanted my opinion on whether he could just borrow the money for the purchase of Gander Mountain from Adirondack Bank without using and paying for the services of Fiscal Advisors; he had a friend who worked at Adirondack Bank who could arrange the loan. He thought the bonding fees the town had previously been paying for these services were too high and he was looking to save money.
I let him know that I would do some research and get an answer for him.
I sent an email reply to him at 10:23 P.M. on June 18, 2018 letting him know that he could use a bank note, but I advised him to seek further information from the Municipal Securities Rulemaking Board (MSRB) prior to signing any loan papers. About 20 minutes after receiving my email he replied "Thank you" and I left it at that.
A month later, on July 18, 2018, I sent another email to Miscione stating that I couldn’t find the loan disclosure on MSRB; I also attached a bulletin I found on the EMMA website. The bulletin was vague regarding bank notes, but I thought it was worth noting and something that Miscione should take into consideration. I once again advised him to get a legal opinion.
I inquired in a later phone conversation, if he had made any calls regarding the need to disclose the loan. He told me that his friend at Adirondack Bank said it wasn’t necessary to disclose the loan to the MSRB. I left it at that...who am I to question a friend who works at a bank?
Shortly thereafter, it was noted online that MSRB started to have concerns that not disclosing some “borrowings” could impair the rights of existing bondholders, impact the seniority status of existing bondholders, or impact the credit or liquidity profile of an issuer.
Their concerns were based on the significant increase in the number of private placements and bank loans executed by governments after 2008 because of lower interest costs; lower transaction costs; simpler execution process; greater structuring flexibility; no rating requirements or offering document required; longer terms and larger amounts. Bulletins from MRSB, like the one I had sent to Miscione in July 2018, encouraged Issuers to voluntarily post information about bank loans to EMMA; however, it is noted that few voluntary bank loan disclosures were made on EMMA.
Fast forward to August 2018. It is noted on several financial websites:
“the Securities and Exchange Commission (the “SEC”) adopted amendments (the “Amendments”) to the SEC’s Rule 15c2-12, as amended (the “Rule”) that add two new events which require the filing of a notice with the Municipal Securities Rulemaking Board (the “MSRB”) through the EMMA system. The Amendments significantly broaden the types of financial events an issuer (or obligated person) must report to the MSRB.” The amendment changes the Securities Exchange Act of 1934, Title 17 Code of Federal Regulations (CFR) part 240.15(c)(2)(12) commonly known as “Rule 15c2-12.”As of February 27, 2019, as a result of amendments to the S.E.C. rules, it is now mandatory that disclosure for any incurrence of debt be filed on the EMMA system within ten (10) days.
"The amendment changes the list of events for which notice is required on the EMMA website. Additional required disclosures now also include:
"Any of these events require filing on EMMA within 10 days."
- Incurrence of a financial obligation, if material, or agreement to covenants, events of default, remedies, priority rights or similar—any of which affect security holders (debtholders) if material."
"With this new rule, the SEC clarified the term “financial obligation” to mean:
"It is important to note that the SEC rule changes do not distinguish between bonds, certificates of participation, notes, loans, direct borrowing, direct placement or other forms of debt."
- Debt obligations (of any sort)
- Derivative instruments in connection with, or security of an existing or planned debt obligation (a hedge)
- A guarantee of either (which the GASB terms as a nonexchange financial guarantee)"
The $3.3 million debt missing from the documentation filed with EMMA from the Town of New Hartford with the assistance of Fiscal Advisors was authorized by a vote of the town board in December 2019; months after the new Securities & Exchange Commission amended their “Rule 15c2-12”.
Apparently, the town did not discuss the $3.3 million bank note with Fiscal Advisors; therefore, Fiscal Advisors did not disclose it in their June 30, 2020 disclosure filed on EMMA as required by the S.E.C. The Town of New Hartford is in non-compliance with the rules of the Securities & Exchange Commission.
From the website of EIDE BAILLY:
My advice, for what it is worth, is Miscione needs to get on the phone to Fiscal Advisors a.s.a.p. and figure out how to resolve this issue.
What if Governments Do Not Comply?
"Noncompliance could be a serious matter. At the very least, bond offering statements may be required to give notice of the noncompliance for five years. This may also hinder access to potential buyers of the government’s debt and may increase interest rates. The nationally recognized statistical ratings organizations (rating agencies) may adjust the government’s debt ratings or outlook based on the noncompliance. Finally, cases have occurred where the SEC has charged the issuer with securities fraud and levied fines due to inaccurate filing of EMMA notices."
I would also advise him and the town board to permanently hire a person knowledgeable in town finance and forget about using either Miscione or the Director of Personnel who apparently have no finance background.
Miscione is putting the town finances in peril as well as the reputation of every other person who sits on the town board acting like a bobble head nodding "yes" to every "money-saving plan" that Miscione concocts. If only a had a dollar for every time Miscione excused his actions by saying "the town board voted for it"!
The town has not filed the 2019 AUD with the NYS Comptroller; doesn't have a completed 2019 financial statement; and now has filed a false and misleading disclosure on EMMA with the assistance of Fiscal Advisors.
One last thing...perhaps the town attorney should learn the difference between someone who has been asked to give well-researched advice and someone who merely complains. Too bad Miscione did not keep listening to my advice which is no longer available to him except on this blog.
Perhaps, it is time to wake up!