The Securities and Exchange Commission announced it charged a registered municipal advisor and its owner with defrauding a south Texas school district in connection with multiple municipal bond offerings.
The SEC’s order instituting proceedings found that in connection with three municipal bond offerings between January 2013 and December 2014, Mario Hinojosa and his wholly-owned municipal advisor, Barcelona Strategies LLC, misrepresented their municipal advisory experience and failed to disclose conflicts of interests to their client, a local school district in South Texas. While working as a paralegal, Hinojosa set up Barcelona, registered it as an SEC municipal advisor, drafted a marketing brochure about the firm, and circulated the brochure to the school district and other municipalities. The brochure created the misleading impression that Hinojosa and Barcelona had served as a municipal advisor on numerous municipal bond issuances and failed to disclose that Hinojosa had a financial interest in the school district’s offerings. By virtue of their misrepresentations and omissions, Barcelona and Hinojosa improperly earned hundreds of thousands of dollars in municipal advisory fees.
“Municipal advisors owe a fiduciary duty to their municipal clients, who rely on advisors to make important financial decisions,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office. “Undisclosed conflicts of interest can lead to significant investment losses, and prevent municipal entities from making informed decisions in their selection of municipal advisors. As described in today’s order, Barcelona fell well short of its obligations to this school district client.”
The SEC’s order found that Hinojosa and Barcelona engaged in fraudulent, deceptive, or manipulative acts and breached their fiduciary duties to municipal clients. Without admitting or denying the allegations, Barcelona and Hinojosa consented to a cease-and-desist order and are jointly and severally liable for paying $362,606 in disgorgement and $19,514 in prejudgment interest. Barcelona was also assessed a civil penalty of $160,000 while Hinojosa was assessed a civil penalty of $20,000. Finally, Hinojosa was barred from association with various regulated entities, including municipal advisors.
The SEC’s investigation was conducted by Christopher Reynolds and Melvin Warren with assistance by Mark Zehner of the Public Finance Abuse Unit, and supervised by Scott F. Mascianica, David Reece, and Eric Werner.