The U.S. Securities and Exchange Commission has opened an investigation into the city of Atlanta’s use of airport funds and has also requested documents that will show who provided key financial data to investors in the bond market, according to a subpoena obtained by The Atlanta Journal-Constitution on Monday.
The five-point SEC subpoena was transmitted Oct. 9 via overnight delivery, and requests information dating to Jan. 1, 2016. A letter accompanying the subpoena said the agency has not yet concluded that a violation of federal securities law occurred.
The SEC regulates and enforces the nation’s securities law to protect investors. According to federal guidelines, airport funds can only be spent on capital and operating expenses at the facility. Airport funds include passenger fees and jet fuel taxes.
Kevin LaCroix, a securities attorney and executive vice president at RT ProExec, said the subpoena suggests the commission is targeting potential revenue diversion and the accuracy of the city's financial reports to investors.
“The question is … were there any misrepresentations in those fiscal year financial statements either in respect to revenue or more likely with respect to expenditures,” said LaCroix. “Were they masking the way the money was being used in order to make it look like it was being used in ways they told investors it was going to be used?”
Last year, an AJC article detailed how the city had paid three law firms more than $7 million for legal services in response to federal grand jury subpoenas in the ongoing Department of Justice corruption investigation of Atlanta City Hall. That probe dates back to at least 2016.
The city paid two of the law firms from federally regulated airport funds, and experts told the AJC that the spending could violate federal policy. The AJC’s article prompted the Federal Aviation Administration to launch an investigation that remains open.
A spokesman for Mayor Keisha Lance Bottoms said in a statement Monday that the city intends to cooperate with the SEC’s inquiry.
The SEC subpoena seeks all records about the use of airport money for any purpose other than the airport’s operating and capital cost from Jan. 1, 2016 to present. It also demands that the city identify all individuals responsible for complying with federal rules concerning use of grant money.
And it orders the production of records showing who compiled the airport’s Comprehensive Annual Financial Report for the years 2016, 2017 and 2018, along with documents that would reveal the identities of city officials who transmitted them to the Municipal Securities Rulemaking Board.
The city’s current Chief Financial Officer Roosevelt Council served as the airport’s general manager during those years.
The securities rulemaking board regulates the municipal bond market and investors rely on data provided to the board’s website — known as EMMA — to make decisions about bond purchases.
Ross Albert, a securities lawyer and who previously worked in the SEC’s Enforcement Division, said diversion of airport money is a violation of federal law that requires disclosure.
“If you are violating federal law and you don’t disclose it, that can be prosecuted as a securities law violation,” Albert said. “Investors would want to know if you are operating the busiest airport in the world and if you are violating the law.”
Former Atlanta Chief Financial Officer Jim Beard, who is the subject of a subpoena issued earlier this year about machine guns he purchased using city money, was appointed to a four-year term on the Municipal Securities Rulemaking Board of Directors that began on Oct. 1, 2016. Beard is no longer on the board.
Last week, the city disclosed in a bond pricing document that the SEC had sent a letter, as part of a broader investigation at the airport. The disclosure did not mention the subpoena or describe the nature of the investigation.
One bond analyst told the AJC that it’s too early to determine if the SEC investigation would negatively affect the city’s credit rating.
“It’s still evolving. We’re all kind of trying to make sense out of it and see what’s there,” said Jeff Lack, a director for bond ratings firm Fitch Ratings. “It’s not causing a credit concern right now for the airport.”
But it could add fuel to a discussion among state lawmakers about whether the city should continue running the airport.
Earlier this year, the Georgia State Senators cited concerns about corruption and financial mismanagement when they approved a measure that would have put the airport under state control. The proposed legislation did not make it through the Georgia House of Representatives.
