City of Rochester Gets a Win on SEC Case Regarding RCSD Bonds

Rochester Mayor Malik Evans

City of Rochester officials are celebrating a win on a court case brought on by the Securities and Exchange Commission (SEC) against the city and its former finance director, Rosalind Brooks-Harris.

The lawsuit, which was initiated in 2019, stems from a major budget shortfall within the RCSD, which was not disclosed to the public when the city sold bonds to investors. Municipalities and school districts often issue bonds as a means of borrowing funds.

The financial shortfall caught city leaders off guard once it was revealed.

The SEC complaint named the City of Rochester, former Director of Finance Rosalind Brooks Harris, and former RCSD Chief Financial Officer Everton Sewell. The complaint alleged that they "concealed the district's true financial condition and concealed that the notes issued by the city had more risk than investors were led to believe."

In response, the city argued it does not have control over RCSD finances and cannot be held accountable for any information withheld by the district.

However, the SEC cited Brooks Harris as the individual responsible for selling the bonds.

The settlement, endorsed Wednesday by Chief U.S. District Judge Elizabeth A. Wolford, requires no monetary payment and no monitorship. The City and its former finance director have agreed to forward-looking injunctions only.

“We are extremely pleased with this outcome,” said Mayor Malik Evans. “This completes a long legal argument that we felt confident in pursuing. I am especially proud that the City stood by its promise to protect its employees, regardless of whose administration they worked in.”

“This precedent was worth fighting for, for City employees,” agreed City Councilmember Mitch Gruber, Chair of Council’s Finance Committee. “No City employee should face financial penalties for situations that are squarely out of their control.”

The City of Rochester has long maintained that RCSD’s financial management is independent of the administration and City Council. Despite the mandated budgetary commitment the City makes to the district every year – and the fact that the City is legally obligated to issue debt on the district’s behalf – RCSD is a separate legal and municipal entity and operates independently of City fiscal oversight.

“This is an exceptionally positive result of the City’s focused and consistent efforts in this case,” said Brian Feldman, partner at Aurelian Law, the City’s external legal counsel for the SEC litigation. “These favorable terms seem to be unprecedented.”

Every municipal case settled by the SEC to date, as far as the City and its outside counsel are aware, has required payment of civil penalties, engagement of an expensive monitor, or both. None of those terms are required from the City or its officers as part of this settlement.

The proceeding is captioned Securities and Exchange Commission v. City of Rochester and is docketed in the U.S. District Court for the Western District of New York as 22-cv-6273. As part of the settlement, the City has neither admitted nor denied the SEC’s allegations.