California water district hit with federal fine for 'Enron' accounting

The Securities and Exchange Commission on Wednesday announced a $125,000 settlement with California's largest agricultural water district, which the federal agency accused of misleading investors at the time of a 2012 bond offering.

An enforcement case against two officials of the district also was settled by the SEC, which said one of them had openly joked about Enron-like accounting.

The issuer, Westlands Water District, allegedly falsified the true nature of its debt service reserve funds and financial condition at the time of the $77 million bond offering. Also, the two officials, Westlands General Manager Thomas Birmingham and former Assistant General Manager Louie David Ciapponi, were accused of misleading investors.

This marks the second time a municipal issuer has paid a financial penalty in an SEC enforcement action, the agency said. The previous case was back in 2013 and involved a municipal issuer in Washingtion state.

The Los Angeles Aqueduct carries water from the snowcapped Sierra Nevada Mountains
David McNew | Getty Images
The Los Angeles Aqueduct carries water from the snowcapped Sierra Nevada Mountains

Westlands Water District serves the western San Joaquin Valley and is one the largest agricultural water districts in the nation. The Fresno, California-based district, which provides water for farming in the western Fresno and King counties of California, has federal contracts to provide water to farms in the Central Valley.

"The undisclosed accounting transactions, which a manager referred to as 'a little Enron accounting,' benefited customers but left investors in the dark about Westlands Water District's true financial condition," said Andrew J. Ceresney, director of the SEC's enforcement division, in a press release. "Issuers must be truthful with investors and we will seek to deter such misconduct through sanctions, including penalties against municipal issuers in appropriate circumstances."

In a statement, Westlands Water District said: "The Commission did not allege, and the order approving the settlement did not find, that Westlands, Birmingham, or Ciapponi intended to mislead potential purchasers of the 2012 bonds. Westlands has not missed any payment required to repay the 2012 bonds and other bonds issued by Westlands."

"Under the terms of the settlement, Westlands, Birmingham, and Ciapponi neither admit nor deny Commission's allegations or the findings contained in the order approving the settlement," said Johnny Amaral, the district's spokesman, in an email declining further comment.

In announcing the enforcement action, the government said Birmingham and Ciapponi "improperly certified the accuracy of the bond offering documents." To settle the charges, the SEC said Birmingham settled for $50,000 and Ciapponi for $20,000.

Westlands' fine of $125,000 is significantly larger than the SEC's first financial penalty levied against a municipal issuer.

Back in November 2013, the SEC charged Washington state's Greater Wenatchee Regional Events Center Public Facilities District with misleading investors in a bond offering that financed the construction of a regional events center and ice hockey arena. Greater Wenatchee settled for $20,000.