ALLEN PARK, MI -- The US Securities and Exchange Commission on Thursday announced fraud charges against Allen Park, a former mayor and a former administrator in relation to a failed movie studio project the saddled the city with millions in bond debt.
Federal investigators found that the city gave investors misleading information and made unrealistic claims when it sold $31 million in bonds in 2009 and 2010 to purchase a 104-acre former Visteon Corp. property on Southfield Road.
The city, former mayor Gary Burtka and former city administrator Eric Waidelich each agreed to settlement deals with the SEC, the federal financial regulatory agency announced.
The city, according to SEC investigators, begin planning for the movie studio project in 2008 -- after the state approved film industry tax credits, pitching to bond buyers an economic development plan that would create a $146-million facility with eight sound stages and a Hollywood executive director at the helm.
Annual revenue from leasing the site would bring the city $1.6 million a year that could go toward repaying the bond debt, officials projected.
But by the time the bonds were issued in Nov. 2009, and June 2010, plans for the site had been dramatically downsized to the development a vocational school.
City officials, according to federal investigators, never told borrowers about the smaller, less lucrative plan, nor about the fact that the citys budget deficit had ballooned to $2 million in 2010.
Debt payments on the bonds amounted to about 10 percent of the citys budget.
The state appointed an emergency manager to take over Allen Park government in 2012, citing the failed Unity Studios project as a factor.
Municipal bond disclosures must provide investors with an accurate portrayal of a projects prospects and the municipalitys ability to repay those who invest, said SEC Enforcement Division Director Andrew Ceresney. Allen Park solicited investors with an unrealistic and untruthful pitch, and used outdated budget information in offering documents to avoid revealing its budget deficit.
Waidelich, without admitting or denying the allegations, agreed to settle the case against him with a judgment barring him from ever participating in municipal bond offerings, according to the SEC.
Burtka, charged because he was an active champion of the project and in a position to control the actions of the city and Waidelich, according to the SEC, also agreed to being banned from involvement in future municipal bond offerings, plus a $10,000 penalty.
The city agreed only to to cease and desist from future violations of SEC provisions.
The SEC considered certain remedial measures taken by the city, which settled the enforcement action without admitting or denying the findings, the agency announced.
The city earlier this year cut its losses on the failed project, selling the site for $12 million in a deal that then-Emergency Manager Joyce Parker said would save $1.2 million a year in maintenance, tax, insurance and utility costs.
A New York firm plans to develop a hotel on the site.
The state in September announced an end to emergency management in Allen Park and the establishment of a financial advisory board to continue oversight over the downriver Detroit suburbs finances.