City of Rochester, New York, Rosiland Brooks-Harris, Capital Markets Advisors, LLC, Richard Ganci, and Richard Tortora

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 25981 / April 22, 2024

Securities and Exchange Commission v. City of Rochester, New York, Rosiland Brooks-Harris, Capital Markets Advisors, LLC, Richard Ganci, and Richard Tortora, No. 22-cv-6273 (W.D.N.Y. filed June 14, 2022)

Federal Court Grants SEC Summary Judgment Over Claims That Municipal Advisor Breached Fiduciary Duties Owed to Its Clients and Violated MSRB Rules

On April 15, 2024, the U.S. District Court for the Western District of New York granted the Securities and Exchange Commission partial summary judgment against a New York-based municipal advisor, Capital Markets Advisors, LLC (CMA), and two of its principals, Richard Tortora and Richard Ganci. The Court found that the defendants breached the fiduciary duties owed to their municipal entity clients and violated Municipal Securities Rulemaking Board (MSRB) rules.

As alleged in the SEC’s complaint, CMA, Tortora, and Ganci failed to disclose to CMA’s clients material conflicts of interest arising from CMA’s contingent compensation arrangements over a period of several years. The SEC alleged that a municipal advisor has a material conflict of interest when its compensation is contingent on the size or closing of a client’s transaction, and a municipal advisor must disclose its material conflicts of interest prior to, or upon engaging, in municipal advisory activities. The SEC further alleged that during this same period, CMA, Ganci, and Tortora made written representations to clients in which they falsely stated that CMA had no undisclosed material conflicts of interest. Additionally, the SEC alleged that CMA failed to establish written supervisory procedures requiring the disclosure of all of CMA’s material conflicts of interest to its clients, including those arising from CMA’s contingent compensation arrangements, and that even after the procedures were established, Ganci and Tortora failed to implement or enforce those procedures.

The Court granted summary judgment in favor of the SEC on six claims. Specifically, the Court found that CMA, Tortora, and Ganci breached their fiduciary duty of loyalty to their municipal entity clients, in violation of Section 15B(c)(1) of the Securities Exchange Act of 1934 and MSRB Rule G-42, when they failed to disclose CMA’s material conflicts of interest. The Court also ruled that CMA, Tortora, and Ganci violated MSRB Rule G-42 when they failed to provide their clients full and fair disclosures in writing of CMA’s material conflicts of interest. The Court further held that CMA, Tortora, and Ganci violated MSRB Rule G-17 by failing to deal fairly with their clients and engaging in a deceptive, dishonest, or unfair practice. In addition, the Court ruled that CMA, Tortora, and Ganci violated MSRB Rule G-44 when they failed to establish, implement, and maintain a system to supervise the municipal advisory activities of CMA and its associated persons that was reasonably designed to achieve compliance with applicable securities laws and regulations. Finally, the Court found that the violations of the MSRB rules by CMA, Tortora, and Ganci constituted violations of Section 15B(c)(1) of the Exchange Act’s prohibition against engaging in municipal advisory activity in contravention of any MSRB rule. In the same order, the Court denied the defendants’ motion for summary judgment on the same claims.

The Court’s order granting summary judgment resolves the SEC’s claims against Tortora in this matter. Additional claims for which the SEC did not seek summary judgment remain pending against CMA, Ganci, the City of Rochester, New York, and Rosiland Brooks-Harris.

The SEC’s litigation is led Eugene Hansen and Daniel Maher under the supervision of James Carlson, and the investigation was conducted by Cori Whitten, Warren Greth, Laura Cunningham, Jonathan Wilcox, and Creighton Papier of the Enforcement Division’s Public Finance Abuse Unit under the supervision of Ivonia Slade and Rebecca Olsen.