Corporate Finance

Municipal Adviser Charged With Bidding Fraud

The case is the SEC’s first enforcement action under the municipal adviser anti-fraud provisions of the Dodd-Frank Act.
Matthew HellerJune 14, 2016

A municipal advisory firm has been charged with using confidential information from a consultant to California school districts to give it an advantage in the districts’ process for hiring finance professionals.

According to the U.S. Securities and Exchange Commission, Keygent LLC improperly won advisory contracts from five school districts after it retained Terrance Bradley of School Business Consulting Inc. (SBCI) to help it pursue new clients.

Among the districts that Bradley allegedly solicited on Keygent’s behalf were some of his own clients, giving him access to confidential information he passed on to Keygent, including questions to be asked in its interviews with the districts and details of competitors’ proposals including their fees.

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The case is the SEC’s first enforcement action under the municipal adviser anti-fraud provisions of the Dodd-Frank Act. To settle the charges, Keygent and its principals Anthony Hsieh and Chet Wang agreed to pay penalties totaling $150,000, while Bradley and SBCI agreed to pay a combined $50,000.

“This unauthorized exchange of confidential client information could have given Keygent an improper advantage over other municipal advisers that were candidates for the same business,” Andrew Ceresney, director of the SEC Enforcement Division, said in a news release. “The Dodd-Frank Act prohibits this type of deceptive behavior by advisers when dealing with municipal issuers.”

Keygent’s business focuses exclusively on advising school districts and community colleges in California that issue bonds. In 2010, it hired Bradley, a former school district superintendent, to “advise senior management on strategy, new business development, public policy, and research.”

During the hiring process for the five districts, the SEC said in an administrative order, Bradley made a change suggested by Hsieh and Wang to one district’s bid request that “was designed to require a known competitor to disclose in its proposal potentially negative information concerning a past legal issue.”

For two other districts, he allegedly provided Keygent with a chart showing all of the other candidates’ fee proposals.

“None of the five school districts was aware that Bradley had shared this confidential information with Keygent, nor was Bradley authorized by the school districts to do so,” the SEC said.