Accused muni advisor in talks to settle SEC charges

Brandon Comer and his firm Comer Capital Group, the municipal advisor charged by the Securities and Exchange Commission with breaching his fiduciary duty on a $6 million 2015 bond offering for the Harvey, Illinois Public Library District, are in talks to settle ahead of a pretrial conference scheduled for Nov. 17.

Comer was charged by the Commission in June 2019 and has since maintained his innocence, arguing that the January 2015 offering was tainted by the financially troubled City of Harvey through no fault of Comer’s. The four year back and forth between the Commission and Comer could settle within the next few months, and if they can’t come to a settlement agreement, the case will head to trial following their November conference.

“Jury trial date to be set at the pretrial conference,” an entry before Judge Elaine Bucklo said. “The parties are encouraged to continue settlement discussions.”

The SEC alleged that Comer violated his fiduciary duty to the district by failing to take steps to make sure the district paid a “fair and reasonable” rate, costing the district at least $500,000 in additional interest over the life of the bonds. The district’s $6 million insured offering priced with a 7.1% couple and had a triple-B underlying rating.

The Commission also alleges that Comer and his firm did not give advice to the district on selecting an experienced underwriter, did not research appropriate pricing for the bonds, didn’t assist with pricing the bonds and didn’t negotiate on the district’s behalf.

According to the SEC, Comer deferred many of these decisions to the district’s underwriter, IFS Securities, which the SEC charged in an administrative proceeding. The SEC charged that IFS was sufficiently experienced in selling bonds similar to the district’s bonds, that the firm mismanaged the pre-order marketing period and did not attempt to negotiate or find other buyers after accepting a bid with an unreasonably high yield.

The SEC further alleged a conflict of interest created by IFS recommending Comer for the job and Comer subsequently asking IFS to work with the district to increase his fee for the transaction. Comer initially agreed to a lower than usual payment of $15,000 for his services, with IFS negotiating an increase to $20,000. Comer then personally negotiated another fee increase, ending his compensation with the district at $40,000.

Harvey, a cash-strapped Chicago suburb, has no control over the Library District. Harvey has defaulted on millions of dollars of bonds and was the subject of a 2014 SEC enforcement action, where the Commission took the unusual step of seeking an emergency court order to halt an upcoming bond sale because it alleged the city and its comptroller were diverting bond payments for personal gain and to meet city payroll needs.

IFS also bungled the offering period, the SEC alleges, by not only by waiting until the offering date to begin contacting initial buyers, but also by not preparing a sales memorandum for circulation to potential buyers, and not confirming the bond’s insurance at the time of offering. In a flurry, IFS contacted broker-dealer FTN and sold the bonds at a 5.05% yield, far above market value.

The bonds then made their way through the secondary market, falling significantly to 4.3% and then to 4%, following their sale by PTC to six small banks in February 2015.

Comer’s defense attorney, James Kopecky, told the court that Comer had no control over the district, which chose IFS as underwriter before Comer was hired and which had its own counsel in addition to Comer as MA. He went on further to say that Comer’s fee increase was justified due to an increase in the scope of his duties beyond the original agreement, and that there’s no requirement that the best price possible be obtained for any issuance.

Comer moved for summary judgment in this case, arguing that he provided valuable services to the district and informed them that the outcome would not be as favorable as hoped. He also claimed that it was only because of him that the bonds obtained its investment grade rating, among other claims.

But that was swiftly countered by the Commission, arguing that the fact that Comer performed some, but not all of the functions they promised or otherwise owed the district is no defense and asserted Comer’s claims as “meaningless”. 

Judge Bucklo said the defendants’ insistence that the record reflects no triable disputes ignores the report of the plaintiff’s expert, Richard Kolman, a longtime muni banker at multiple Wall Street firms, who opined that Comer and his firm created a conflict of interest by asking IFS to help renegotiate their municipal advisory fee.

Kolman also asserted that Comer failed to ensure the District paid a fair and reasonable interest rate, failed to conduct historical pricing analysis and failed to advise that the yield proposed by IFS was well above market levels for comparable bonds.

Comer’s expert Albert Grace stated he had a differing views on a number of Kolman’s statements, but Comer’s motion for summary judgment failed.

The case is high stakes for Comer, who was only 37 at the time the Commission brought charges against him, which can result in industry bars and can be effectively career ending.

Comer’s attorney James Kopecky did not respond to requests for comment.