Jackson Jambalaya

The SEC is going after the Bond Pimp.  The Securities and Exchange Commission sued Porter Bingham and his company, Malachi Financial Products, in U.S. District Court yesterday for fraud.  It accused Bingham and his posse of ripping off the city of Rolling Fork (MS) by submitting phony invoices that were paid on a bond deal.

Rolling Fork hired Bingham as a municipal financial advisor in January, 2015, since it was considering raising money by selling bonds.   Anthony Stovall of Bonwick Capital Partners, LLC sent two payments for $2,500 to Bingham in May, 2015.  Stovall and Bingham have collaborated on quite a few bond deals through the years in Mississippi.  Stovall owns Bonwick but previously worked at Rice Financial Products.  The SEC alleges Malachi recommended that Rolling Fork hire Bondwick to underwrite the bond sale and the city did so.   However, there is just one problem.  The payments created a conflict of interest that was supposed to be disclosed to the client, i.e. Rolling Fork, but the Bad Boyz of Bonds did not do so.

Rolling Fork has a population of 2,250.  Stovall is age 50 and a resident of West Orange, New Jersy.  The SEC says he is not currently involved in the financial services industry.  Bingham is 56 years old and lives in Roswell, Georgia.

Malachi submitted two invoices in October to the bond trustee.  Both were paid without the city's knowledge.  The first invoice charged $22,000 to the city.  This fee was allowed by the contract between Malachi and Rolling Fork, since it allowed Malachi to charge up to 2% of the bond sale amount. 

The city was going to sell $2 million of bonds.  However, state law limited Rolling Fork's borrowing capacity to $1.1 million.  The maximum fee (at 2%) that could have been charged under the proposed offering would have been $40,000.  The lower amount reduced the fee to $22,000.  However, the complaint alleges that Malachi had a solution for this problem.

Malachi allegedly submitted a second invoice of $33,000 for "additional services" that were not part of the contract.  The complaint states:

In fact, the second invoice was fraudulent because Malachi did not provide the purported additional services and the City did not authorize or agree to the additional charges.

8.  Although both invoices were addressed to the Mayor of the City, Malachi did not provide them to the Mayor or anyone else at the City before payment. Thus, the City was not aware of the fraudulent overcharge until after the bond trustee paid the invoice.

The SEC couldn't figure out exactly what Bingham did for the money he received from Rolling Fork:

 45.  Malachi provided no services relating to the investment of bond proceeds to the City of Rolling Fork. Additionally, the bond proceeds had not, in fact, been invested by the time of the second invoice.

46. Neither Bingham nor Malachi has any documentation reflecting any investment services they purportedly provided the City in connection with the proceeds from the Offering.

 47. Although Malachi and Bingham may have also created some post-bond issuance compliance policies for the City and examined the City tax rolls to determine the City’s legal lending limit, neither of those services, even if provided, justified the $33,000 invoice.

48.  The post-issuance compliance policies that Malachi and Bingham purportedly created for the City contained nothing but standard boilerplate language, much of which can be found merely by doing an internet search. As such, it would have been unreasonable to bill the City $33,000 for preparing these policies. More importantly, Malachi and Bingham never provided those written policies to the City.

However, the complaint reveals more disturbing information about Porter Bingham.  His previous company, The Malachi Group, was expelled from the National Asssociation of Securities Dealers in 2006 for failing to pay fines. The SEC spelled out Bingham's current status in no uncertain terms:

 16.  Previously, Malachi had filed Form MA-I with the Commission establishing Bingham as a person associated with a municipal advisory firm. However, because Bingham did not take or pass the Series 50 municipal advisor exam by the requisite deadline, pursuant to MSRB Rule G-3, he is not permitted to act as an associated person of a municipal advisor or provide municipal advice.

It appears the SEC declared that the municipal financial advisor is not a municipal financial advisor.

The SEC charged Bingham and Malachi with the following counts:

I.  Fraudulent practices by a municipal advisor
II. Breach of fiduciary duty
III. Mail fraud
IV. Aiding/abetting fraudulent practices by a municipal advisor.
V. Aiding/abetting breach of fiduciary duty

The complaint asks the Court to order the defendants to  repay all fees and pre-judgment interest.  The SEC also seeks civil penalties and an injunction as well.  The case is assigned to District Judge Halil S. Ozerden and Magistrate Linda Anderson.




Earlier posts about Malachi Financial Products
No invoices for JPS bond deal.
Malachi gouges Jackson and Canton public school districts on bond deals.
Malachi and Blackmon gouging Rolling Fork?
Malachi wants $500,000 to draft JPS budget
Pay me now or pay me later.
$182,000 on Siemens deal.
Jackson will pay an extra $8 million to refinance bonds