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Unqualified Legal Opinion on a Municipal Bond

In the municipal securities market, legal advice is traditionally free. Surety lawyers may provide an “unqualified” opinion on the validity and tax exemption of surety bonds if they are “firmly satisfied” that, under the law in force at the time of the notice, the highest court of the relevant jurisdiction, reasonably and properly informed of the issues, would reach the legal conclusions set out in the notice. The Wasco Public Funding Authority is a public funding authority formed by an agreement between the Town of Wasco and the Wasco Redevelopment Agency. Wasco is a political department of the U.S. state of California. It is located in California`s Central Valley, 275 miles south of San Francisco, and has a non-prisoner population of about 10,000. The Town of Wasco is governed by an elected City Council, whose members are also directors of the Wasco PFA Authority and the Wasco Redevelopment Agency. The complaint further alleges that the District, Mortensen, Mayo, National, Osness, Jackson, MFAI and Luebbe prepared and submitted false and misleading offer circulars on various occasions and that Benchmark, Phillips and Fidler prepared and prepared television advertisements purporting to describe the district`s bond advance notes. The complaint alleges that these offering circulars and television advertisements contained false and misleading statements and did not disclose material facts regarding, inter alia: (1) the use of proceeds from the sale of debt securities; (2) discounts and subscription commissions received by sellers of the bonds; (3) the financial situation of the district; (4) the operational history of the district; (5) the structure of the district`s debt; (6) the absence of authorization from the California State Treasurer for the District to issue general bonds; and (7) risk factors associated with the purchase of District Anticipation Bonds. The complaint further alleges that the District, its trustees Schoenfeld, Lundell and Lewis, its Chief Executive Officer Mortensen, its bond adviser Schringer and All-States, Tamburri, Grills, McGriffin and Steele approved, prepared, offered, sold and delivered promissory notes issued by the District (“Promissory Notes”). The complaint alleges that these promissory notes made the same false statements on their front and omitted the same material facts as the bonds. The complaint alleges that the defendants made numerous false statements about material facts relating to the use of proceeds from the sale of securities; the purposes for which the bonds were issued; priority of liens over the property of WCUD or its divisions; sufficient revenues from WCUD projects to cover operating costs and pay interest and principal on maturing bonds; and other matters.

In addition, the defendants are accused of failing to disclose many material facts, in particular the fact that the WCUD bonds were sold at very large discounts to the tax agent Alcock; the proceeds from the sale of the bonds were used for unauthorised purposes, such as: loans to Patrick, the director of WCUD, and companies controlled by him or his relatives, and to pay interest on previous bond issues; and that Patrick received a portion of the financial officer`s fee from Alcock. The complaint also alleges that Mortensen made false statements and failed to provide material facts about the district`s production capacity and financial prospects, as well as the district`s ability to refund tickets; that Schreiner made false statements and failed to disclose material facts regarding his investigation into the legality and validity of the issue and the value allegedly received by the county in exchange for the debentures; and that National, Jackson, MFAI, Luebbe, Benchmark and Fidler made false statements and failed to provide material facts based on their recommendations to purchase the District Bonds. Finally, Dondich, Mayo and Osness allegedly misrepresented the sale of the tickets and failed to provide the purchaser with material facts about the negotiability and security of the district`s bonds. Following the issuance of the Ione CFD-2 bonds, Ione determined that the preliminary card was not subscribed in accordance with the minimum lot size requirement set out in the development agreement between Ione and the developer. When the plot size was recalculated, the development had only 584 single-family lots instead of 667 as originally calculated and presented in Ione CFD-2`s official statement. The complaint alleges that the front of the bond itself contains inaccurate statements of material facts and fails to disclose material facts regarding, among other things: (1) the product available to refund the tickets; (2) the availability of sources of financing other than the proceeds of the repayment of the bonds; (3) the district`s insufficient tax base to generate sufficient funds to repay the tickets; and (4) the absence of any liability on the part of the State of California and Contra Costa County to repay the Debentures. Nevada County has raised $9.07 million through the sale of “Mello Roos” bonds that will be used to finance real estate development. The order alleges that the Nevada County`s official offer statement contained false statements and omissions regarding: (1) the value of the property to be developed; (2) the developer`s right of ownership of the property; (3) the experience and financial situation of the promoter; (4) cost estimates for carrying out the project; and (5) how the project would be funded by the proponent and the County of Nevada. The order further alleges that Horler, a Nevada County financial advisor, drafted the official statement, which was reviewed by Nevada County employees and officials and approved for distribution by resolution of the county board of supervisors.

2. In February 1998, the Securities and Exchange Commission (the “Commission”) issued an injunction instituting public administration proceedings against three Central California municipalities and two professionals for causing or committing securities fraud in connection with the sale of $58 million of municipal bonds. The order names Nevada County (“Nevada County”), the City of Ione (“Ione”), the Wasco Public Financing Authority (“Wasco”), Virginia Horler (“Horler”) of Dain Rauscher Incorporated (formerly known as Rauscher Pierce Refsnes) and William McKay (“McKay”), a real estate appraiser. The order alleges that municipalities and individuals created and approved written records used in the sale of bonds that fraudulently declared or omitted important information.