Friday, January 5, 2018

The rape of Rolling Fork

The headline for this post seems rather strong but that is indeed what happened in Sharkey County.  Rolling Fork was just another small town in Mississippi that made the mistake of running into some bond pimps who promised golden showers but instead gave the town a golden fleece. That mistake cost the town of two thousand people several hundred thousand dollars. That's quite a pretty penny for a city with a budget of less than $2 million.

Rolling Fork was interested in financing infrastructure improvements with bonds.  The city hired Malachi Financial Products of Roswell, Georgia  to be its financial advisor.  Malachi is owned by Porter Bingham.  Mr. Bingham recommended that the city sell bonds to raise $2 million.  However, the bond sale was lowered to $1.1 million due to Rolling Fork's limited borrowing capacity. 

Most aldermen and councilmen lack the financial expertise to understand bond deals and are thus ripe targets for some good ole fashioned plucking. Rolling Fork was no exception as the bond pimps proceeded to loot the bond sale.

Check out the fees* on this bond deal:

Malachi Financial Products: $55,000
Bonwick Capital Partners (Underwriter0: $130,000
Chambers & Gaylor (Bond counsel): $25,000
Mississippi Development Bank: $2,500
Balch & Bingham: (MDB Counsel): $5,000
Allen Woodard (Issuer's Counsel): $10,000
Trustmark (Bond Trustee): $2,500
Jackson Advocate: $150
Spence Flatguard (State bond attorney): $1,000
Munideals, Inc: $1,200
Total: $232,349. 
Percentage of Bond issue: 21%

Rolling Fork sued Malachi, Bondwick, and Chambers & Gaylor in May 2016 to recover the fees in Sharkey County Circuit Court.   The contract states that the fees  were "not to exceed 2% of the debt issuance" for Malachi's services.  The city was supposed to pay Bonwick a fee that was 1.5% of the actual bond sale. Bonwick's fee should have been $16,500 but it charged the city $130,000.   The city was going to hire Lord Snow as bond counsel but it instead hired the law firm of Chambers & Gaylor after Mr. Bingham recommended that it do so.

Details seemed to escape the notice of these Wall Street whiz kids.  The complaint states:

11. On August 11, 2015, the Board of Aldermen of the City adopted a resolution giving Notice of Its Intent to issue the subject general obligation bond in the amount not to exceed $1,100,000. Even though the City had no studies, engineering reports, architects estimates of costs or the useful life of the projects set forth in the resolution, the Board, at the advice of its FA, Malachi, authorized the subject bonds with a final maturity and amortization of twenty-five years. There were no protests of petitions filed in response to the August 11, 2015, Resolution and on September 8, 2015, the City proceeded to adopt a Resolution Authorizing and Directing the issuance of its general obligation bonds in the amount of $1,100,000. The Resolution authorizing the issuance of the bonds does not contain any information regarding the repayment terms or the maturity of the bonds. However, the bonds were subsequently issued with a thirty year maturity even though the Notice of intent to issue the bonds sets forth that the bond will have a twenty-five year maturity.

The invoices for the fees were submitted to the bond trustee, who paid them upon demand.  They were never approved by the Board of Aldermen or the Mayor.

The complaint charges the defendants with breach of contract.  Malachi's fee was limited to 2% of the bond sale at $22,000.  However, Malachi charged the city $55,000.  The city demands that Malachi repay $33,000 to the city.  A demand is also placed upon Bonwick to repay $113,500.  The complaint also seeks repayment from Chambers & Gaylor and accuses the firm of "professional malpractice."

However, the fees are small potatoes compared to the ticking time bomb that Rolling Fork charges was placed into its finances.  A bond sale for this amount is considered to be a very small issue.   Malachi had a fiduciary duty to advise Rolling Fork that it did not need a financial advisor for such a small sale.   Malachi recommended the city use the Mississippi Development Bank, which incurred a whole set of unnecessary professional service fees.  Using the Mississippi Development Bank meant the city has to pay an extra $150,000 in capitalized interest and ten years of extra payments.  The bonds have a thirty-year maturity instead of a twenty-five year maturity, thus costing

The city could have simply sold the bonds to a bank as a qualified investment.  Only the services of a bond counsel and city attorney.  Going through the development bank meant an underwriter, state bond counsel, issuer's counself, and other services and thus fees were required.  

The complaint also charges the defendants with fraudulent representation, negligent misrepresentation, and breach of fiduciary duty.  It seeks actual and punitive damages as well as attorney's fees.

The Securities and Exchange Commission sued Malachi and Porter Bingham for fraud earlier this week in U.S. District Court in Jackson.  The SEC also said that Mr. Bingham is fraudulently acting as a municipal financial advisor.  He never passed the required Series 50 test and thus is not qualified to represent himself as one.  

*Source: Rolling Fork complaint and DFA. 

Kingfish note: This little group has been preying upon majority-black governments for years in Mississippi.  Porter Bingham would swoop in as the financial advisor promising all sorts of financial goodies while Tony Stovall (Rice Financial Products and then Bonwick) and Tony Gaylor (as bond counsel) would surf on his coattails into the deal.  Prime examples of this posse's plundering are the 2015 JPS and Canton School District bond deals.

Most of the supervisors, school board members, and aldermen lack any financial expertise whatsoever so rely upon these guys for their advice.  The advice means they get cleaned out while everyone gets paaaiiiiid.  Woe be the government that wises up and kicks out these scoundrels.  They would get on WMPR on Friday nights and proceed to play the Uncle Tom card and trash them for not helping minority businesses.

 Earlier posts about Malachi Financial Products
SEC sues Malachi for Rolling Fork fraud, Advisor was not an advisor.  
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


Anonymous said...

People should elect people with a little more intelligence.
Then they would not be so much crying when they can't do the job they were elected to do.

Kingfish said...

Electing nothing but community activists, consultants, people who don't work, government employees, and similar types of people is not a good way to start.

Of course, you just saw the JPS defenders come on this website because Leland Speed was appointed to that JPS Commission. And how much money did JPS waste on bad bond deals?

Anonymous said...

Have always advocated that Mississippi needs some sort of truth-in-bonding law that forces disclosures before any voting takes place to approve bonds. Whether the approvals be by elected bodies or by the public at the ballot box. Must also include any re-financings.

Louis LeFleur said...

People getthe government they deserve. Consider the electorate in this case, or unfortantely, that of my own City of Jackson. Let's not stop there, however, but compare the expertise of each council member by ward and how that reflects on the varying voting base in each ward. I guess that makes me a racist, huh?

Anonymous said...

To your point 10:34, I’m not being flippant, but how many people in Rolling Fork (as qualified electors) are intelligent enough to understand this type of thing. I am not picking on Rolling Fork (got intelligent family there) because this applies to most MS municipalities under 10,000 people. How many of their citizens understand this? Now, how many of them are electable?

Remember, for many rural communities, a good chunk of their citizens who have the intelligence to understand this - through education or experience - don’t actually live in the City limits. Sharkey Co. has a few smart businessman farmers, but only one or two live in town. The rest live on their large farms.

Also, who trains municipal officials on these issues for the MS Municipal League? The bond advisors. They’re not listed in this crew, but they still make their living issuing municipal bonds. They aren’t paid unless bonds are issued. That’s like hiring an insurance agent to teach people who need insurance about that insurance. They could be honest. But they’ll go hungry is they don’t sell you.

Anonymous said...

The same ole game went on for years throughout Mississippi before Black people came into authority. The good ole boy system just has some new players, that's all. The big difference is that whites have political and law enforcement backup when they fleece the sheep. Blacks on the other hand have no real backup and will soon be doing the federal perp walk. Count on it.

Anonymous said...

I can assure you that the Feds are now aware of these characters and their will be consequences for these people AND the people not listed here that are hiding behinds the scenes and getting paid. You know who you are!

Kingfish said...

Guess you missed where I wrote about Pearl's bad bond deals.

Anonymous said...

I know some people in Rolling Fork who can see through deals like this. Obviously the "people in charge" chose not to seek their advice.

Anonymous said...

These figures show that every man, woman, and child living in Rolling Fork paid an average of $114.74. A family of four paid an average of $458.96. Of course these figures were hidden by stretching them out over the duration of this bond issue.

Anonymous said...

Why don't cities worry about saving money before they start borrowing. If you cannot provide the needed infrastructure through taxes maybe not being a city would be a smarter idea. Keep the city small enough that the taxes will provide what is needed for the city.

Anonymous said...

They elected a new mayor last summer - partly because of this. He'll have a tough time fixing all this, but I hear that he's very capable and understand finance as well as anyone.

Anonymous said...

The big engineering firms do the same thing. Summitt MS

Sell'em a fancy overblown system to max out the fees for service and construction and then leave the townfolks with the bill. Next up... West Rankin County!

Anonymous said...

“Promising golden showers?”


Anonymous said...

3:04 PM, correct. Fred Miller is the former long-time President of the Bank of Anguilla. He is their best shot at correcting this mess.

Anonymous said...

On a similar note, Biloxi had bonds issued for a stadium that is not profitable, isn't being used for other venues and likely will cost the taxpayers much more. But the law firm and a small group of politically connected folks made their money off the deal. They all find a way to siphon off a little money for themselves.

Kingfish said...

I've written about those bonds before as well.

Frankly, there is only one financial muni advisor in the state that one sees in bond work: Government Consultants, owned by Steve Holley. His firm knows its stuff and doesn't charge but a fraction of what Malachi charges but he doesn't have to when he has virtually a monopoly. Malachi appears on bond deals for majority black governments be it cities, school districts, or counties. Even so, it has only had a handful of them. GC has the vast majority.

Having written that, Malachi's deals are usually suspect. They typically involve exorbitant fees and provide a bunch of up front money but the overall deal winds up costing the government body selling the bonds a great deal of money. The bond refinance for the city of Jackson I once wrote about is a prime example. It was a disastrous deal but all Harvey cared about was getting his extra six million dollars a year for a few years and kicking the can down the road for someone else to deal with. Not to mention, since I live in Jackson, I see this stuff up close much more than I would if it was in Desoto or George County.

Under Shell Number 3, Wait...2 said...

You've just described, at 11:28, what sounds exactly like Pay-Day Loan and Cash-For-Titles businesses.....both of whom prey primarily on low-income, mostly black folk who are tricked to ignore high rates and exorbitant payouts.

And in reality, many other shysters belong in that same pool of hucksters. We can add Jesse Jackson and Sharpton to the list. Then we can talk about locals who are in that same group. Poverty pays big time.

Anonymous said...

Government Consultants is not, by far, the only other legit FA operating in MS. Might be the only one you know about, KF, but before you make such a statement you ought to ask around a little wider group. And to give them a clean slate is a little nice - agreed that they are much more honest in their dealings with local governments, don't generally advice them to go into deals that they shouldn't do, and charge reasonable fees. But you evidently close your eyes to the exorbitant fees they collect where nobody is watching over the two little fiefdoms that they run under the cover of state government over on Riverside Drive. Check out their history there, and the fees collected over the years for services that are repetitive and unnecessary.

Kingfish said...

I didn't give the a clean slate. Just said fees are much lower. There are other MS's of course, just don't see them on many deals. I see Southwest on a couple and Comer as well. Bu

Anonymous said...

Please translate post at 5:41. Thanks.

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