SEC magnifying glassRamapo, New York Town Supervisor Christopher St. Lawrence heads to trial this week on federal securities fraud charges. St. Lawrence is one of two city officials charged in the case; his codefendant N. Aaron Troodler pleaded guilty earlier last month. The SDNY U.S. Attorney’s Office promoted the Troodler conviction as the first time municipal bond fraud has been successfully prosecuted under federal securities laws. The St. Lawrence trial is expected to draw lots of attention; St. Lawrence is an elected official who has spent nearly two decades at the helm of his town.

The municipal bond market is worth trillions – so it is likely that scrutiny will continue into municipal bond offerings and other related financing events. While the municipal bond market has long seen enforcement through SEC actions, the leap to individual criminal prosecution can give us some sense of where the government’s eye may be trained. Locally, the SEC and FBI have investigated school board financing and other city government fundraising. Whether criminal charges will follow remains to be seen.

Cities and municipalities with lean finances should be careful to avoid the types of mismanagement and fraud that are alleged in the St. Lawrence case, in which city employees allegedly beefed up the town balance sheets to encourage investment. Our article also goes through some recommendations for cities on lessening the risks associated with raising capital for municipal projects, and details the investments up front which can save a lot of trouble down the line.