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The Securities and Exchange Commission charged Oyster Bay, New York, and its former top elected official with defrauding investors in the town’s municipal securities offerings by hiding the existence and potential financial impact of side deals with a businessman who owned and operated restaurants and concession stands at several town facilities.
According to the SEC’s complaint, Oyster Bay agreed several years ago to indirectly guarantee four separate private loans to the concession stand vendor totaling more than $20 million. The agreement to indirectly guarantee the debts allegedly stemmed from the concessionaire’s longstanding close relationship with then-town supervisor John Venditto and other officials that involved gifts, bribes, kickbacks and political support.
The SEC’s complaint alleges that Oyster Bay and Venditto deliberately concealed the indirect loan guarantees when they should have been disclosed in connection with the town’s 26 securities offerings from August 2010 to December 2015.
According to the complaint, this information was material to current and prospective investors due to the potential impact on the town’s finances. For example, in one scenario outlined in the SEC’s complaint, the town could have been required to make a termination payment of approximately $16 million – approximately 16% of the town’s operating budget – within 60 days had the vendor defaulted on the loans.
”As alleged in our complaint, Oyster Bay and its most senior elected official concealed from its municipal investors that the town had gone to great lengths and taken on financial risk in an unusual decision to assist a vendor,” Sanjay Wadhwa, senior associate director of the SEC’s New York Regional Office, said in a statement. “Investors were deprived of information they needed to understand the town’s true financial condition as they made investment decisions.”
In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today filed a superseding indictment that included securities fraud charges against Venditto.
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