In re MONTEBELLO UNIFIED

 
UNITED STATES OF AMERICA 
Before the 
SECURITIES AND EXCHANGE COMMISSION 
 
 
SECURITIES ACT OF 1933 
Release No. 10691 / September 19, 2019 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 87006 / September 19, 2019 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-19469 
 
In the Matter of 
 
MONTEBELLO UNIFIED 
SCHOOL DISTRICT AND 
ANTHONY JAMES 
MARTINEZ,  
 
 
Respondents. 
 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 8A OF THE SECURITIES ACT 
OF 1933 AND SECTION 21C OF THE 
SECURITIES EXCHANGE ACT OF 1934, 
MAKING FINDINGS, AND IMPOSING A 
CEASE-AND-DESIST ORDER  
  
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 
of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 
Act”), against Montebello Unified School District (“Montebello” or the “District”) and Anthony 
James Martinez (“Martinez”) (together, “Respondents”). 
 
II. 
 
 In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the 

 
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Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, 
and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
 
III. 
 
 On the basis of this Order and Respondents’ Offer, the Commission finds
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 that: 
 
Summary 
  
1. This matter involves misleading statements and omissions by Montebello Unified 
School District in the sale of municipal bonds.  Montebello, a school district located in Los 
Angeles County, California, sold $100 million in bonds to the public in December 2016 while not 
disclosing that: (1) its independent audit firm had raised concerns about allegations of fraud and 
internal controls at the District; (2) the District refused to authorize fees for required audit 
procedures, which precluded the audit firm from completing its audit; and (3) the District had 
decided to terminate the firm’s services.  Immediately before and contemporaneous with the 
offering, Montebello’s independent auditor, the Audit Firm, repeatedly raised concerns to 
Montebello’s management and its Board of Education about allegations of fraud and internal 
controls issues at the District.  The Audit Firm also requested, at additional cost to the District, 
authorization to perform expanded procedures surrounding its concerns.  Under applicable auditing 
standards, the Audit Firm was required to conduct these procedures before it could complete its 
audit of the District.  During a non-public Board meeting session, Montebello declined to authorize 
the fees needed for the expanded procedures, which precluded completion of the audit.  
Montebello also decided to terminate the Audit Firm.  In the offering documents for Montebello’s 
December 2016 bonds, Montebello did not disclose the concerns raised by the Audit Firm, that it 
had prevented the Audit Firm from performing necessary procedures, or that it had decided to 
terminate the Audit Firm’s services.  Instead, the offering documents misleadingly stated that the 
Audit Firm “serves as independent auditor to the District.”  Montebello also attached to the 
offering documents an audit report from the Audit Firm from a prior year that contained a clean 
audit opinion.  That statement, and the inclusion of the stale audit report, were materially 
misleading in light of the omitted information.  Montebello also concealed the Audit Firm’s 
concerns by providing incomplete and misleading updates about the status of its pending fiscal 
year 2016 financial statement audit to bond and disclosure counsel for the December 2016 offering 
as well as Montebello’s primary regulator, the Los Angeles County Office of Education 
(“LACOE”).   
 
2. Martinez, Montebello’s Interim Superintendent of Schools in December 2016, 
signed one of the misleading bond offering documents, a misleading letter to LACOE, and false 
closing certificates that were provided to bond and disclosure counsel and the underwriters in 
connection with the offering. 
 
3. By selling the bonds to investors using the misleading offering documents and by 
taking other steps that concealed the Audit Firm’s concerns and termination from investors, 
                                                 
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 The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any other 
person or entity in this or any other proceeding. 

 
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Montebello violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as well as 
Section 17(a) of the Securities Act.  By signing the misleading offering document and the 
misleading letter to LACOE, and by providing bond and disclosure counsel and the underwriters 
with false closing certificates, Martinez violated Section 17(a)(3) of the Securities Act.  
 
Respondents 
 
4. Montebello Unified School District is a California public school district that was 
established in 1936.  Its territory spans multiple cities located in eastern Los Angeles County, 
California.  It is governed by a five-member elected Board of Education. 
 
5. Anthony James Martinez, age 48, is a resident of Palmdale, California.  He is the 
Superintendent of Schools of Montebello, a position he first held on an interim basis beginning in 
October 2016 and then on a permanent basis in February 2018.  Among other things, Martinez’s 
job responsibilities include providing oversight of Montebello’s approximately $300 million 
annual budget and $300 million bond program.  At the time of Montebello’s December 2016 
offering, Martinez had been in the role of Interim Superintendent for six weeks. 
 
Other Relevant Individual and Entity 
 
6. Ruben James Rojas, age 56, is a resident of Corona, California.  From July 2015 
to March 2017, he served as the Chief Business Officer of Montebello.  In that role he had primary 
responsibility over Montebello’s bond program and also oversaw the District’s business 
operations.  Rojas was terminated by Montebello in March 2017. 
 
7. The Audit Firm is an independent auditing firm with its principal place of business 
in Los Angeles, California.  It has been registered with the Public Company Accounting Oversight 
Board since 2003.  The Audit Firm served as Montebello’s independent auditor and audited the 
District’s financial statements for fiscal years 2014 and 2015.  The Audit Firm also served as 
Montebello’s independent auditor for fiscal year 2016, ending on June 30, 2016, but the District 
terminated its services before it could complete its audit for that year.          
 
Montebello Issued $100 Million in Bonds in December 2016 
 
8. On November 3, 2016, Montebello’s Board voted to approve the issuance of $100 
million in general obligation bonds.  The bonds were secured by and payable from ad valorem 
property taxes assessed on taxable properties within the District and collected by the County of Los 
Angeles.  The purpose of the bonds was to fund new facilities construction and maintenance within 
Montebello.   
 
9. Rojas managed the day-to-day operations of Montebello’s bond program and 
oversaw the $100 million bond offering, including the preparation of the offering documents for 
the bonds, which included a Preliminary Official Statement (“POS”), a Supplemented Preliminary 
Official Statement (“Supplemented POS”), and a Final Official Statement (“FOS”) (collectively, 
“Offering Documents”).  Rojas was the primary contact for the bond and disclosure counsel and 

 
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municipal advisor retained by Montebello to assist with the bond offering.  Rojas was also the 
primary person through which bond and disclosure counsel, the municipal advisor, the 
underwriters, and underwriters’ counsel received information for inclusion in the Offering 
Documents for the bonds.  Martinez was not directly involved with the preparation of the Offering 
Documents.   
 
10. On December 7, 2016, Montebello issued the POS.  The bonds priced on December 
13, 2016.  On December 19, 2016, Montebello issued the Supplemented POS, and on December 
21, 2016, Montebello issued the FOS.  Rojas reviewed and provided edits to the POS, helped 
prepare the Supplemented POS, and also reviewed the FOS.  Martinez signed the FOS.    
 
11. The bond offering closed on December 28, 2016.  Montebello received the cash 
proceeds generated by the offering, less fees paid to the professional firms which provided services 
in connection with the deal. 
 
The Audit Firm Repeatedly Raised Concerns about Allegations of Fraud and Internal 
Controls Before and Concurrent with the December 2016 Bond Offering 
 
12. During the first two weeks of December 2016 and in connection with its audit of 
Montebello’s financial statements for the fiscal year 2016, the Audit Firm repeatedly raised 
concerns to Montebello’s Board and management regarding allegations of fraud and internal 
controls issues at the District.  On December 1, 2016, the Audit Firm sent a letter to Montebello 
noting that it had been made aware of allegations of improprieties at the District as well as 
questions concerning Rojas’s qualifications and integrity, which could impact the firm’s ability to 
complete its pending audit of Montebello’s fiscal year 2016 financial statements.  Additionally, the 
Audit Firm requested a closed session meeting with Montebello’s Board to discuss its concerns.  
Martinez and Montebello’s Board president received a copy of the letter on December 2, 2016.  By 
the morning of December 7, 2016, Rojas had also received a copy of the letter and discussed it 
with Martinez.  In the late evening of December 7, 2016, Montebello circulated the POS to 
investors, which did not disclose the existence of the Audit Firm’s December 1, 2016 letter or the 
letter’s contents.  Rojas reviewed drafts of the POS and approved its circulation before it was sent 
to investors.      
 
13. On December 9, 2016, the Audit Firm sent a second letter to Montebello, which 
was circulated to Rojas, Martinez, and each of Montebello’s five Board members.  The Audit 
Firm’s second letter noted that additional matters had arisen that could potentially prevent the 
completion of the fiscal year 2016 audit.  Among other things, the Audit Firm explained that: (1) 
certain audit procedures had been delayed due to the actions of Montebello’s management; (2) 
expanded procedures were necessary in order for the Audit Firm to complete the audit and render 
an audit opinion; and (3) Montebello needed to request an extension of the December 15 deadline 
for the filing of its audited financial statements with LACOE.  The Audit Firm also reiterated its 
request for a closed session meeting with Montebello’s Board to discuss its concerns and to obtain 
authorization to perform the required additional audit procedures.   
 

 
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14. On or about the same time that the Audit Firm sent its December 9, 2016 letter, the 
Audit Firm’s lead partner working on Montebello’s audit spoke by phone with Montebello’s 
General Counsel.  During that call, the lead partner noted that the Audit Firm had concerns related 
to allegations of fraud and misconduct at Montebello, including specifically with respect to Rojas, 
and that the Audit Firm could not complete its audit without performing expanded procedures 
related to those concerns.    
 
15. On December 12, 2016, the lead partner sent an email to Montebello’s General 
Counsel further detailing the Audit Firm’s concerns as well as laying out specific steps that were 
required to be completed under governing auditing standards before the Audit Firm could finish its 
audit work.  Montebello’s General Counsel forwarded the email to Martinez.  Then, on December 
13, 2016, Martinez, Montebello’s General Counsel, and the lead partner had a call to further 
discuss the Audit Firm’s concerns.  Montebello’s bonds also priced on that day. 
 
16. On or about December 14, 2016, the lead partner and Rojas had a call where the 
lead partner reiterated the various issues the Audit Firm had identified for Montebello.  Among 
other things, the lead partner noted that Montebello was now considered at a higher risk level from 
an audit standpoint, which necessitated the performance of expanded audit procedures before the 
pending audit could be completed.   
 
17. Montebello’s management and Board did not disclose the Audit Firm’s 
communications or their contents to the various securities professionals who were working on the 
December 2016 bond offering, including bond and disclosure counsel, the underwriters for the 
bonds, underwriters’ counsel, or Montebello’s municipal advisor.        
 
Montebello Prevented the Audit Firm From Performing Necessary Audit Procedures and 
Terminated its Services 
 
18. In a December 15, 2016 non-public Board meeting, Montebello’s Board, Rojas, 
Martinez, and Montebello’s General Counsel discussed the Audit Firm’s request to perform 
expanded audit procedures, which would require additional time and fees.  During that non-public 
discussion, Montebello’s Board and management decided to deny the Audit Firm’s request, which 
precluded the Audit Firm from being able to complete its pending audit or issue an audit opinion.  
The publicly available agenda and minutes for the December 15, 2016 Board meeting, including 
the closed session, do not make any reference to the Audit Firm, any decision made with respect to 
the Audit Firm, or the status of the pending fiscal year 2016 audit.   
 
19. On or about December 15, 2016, Montebello decided to terminate the Audit Firm’s 
engagement to conduct the audit of the District’s fiscal year 2016 financial statements.  
 
20. On December 19, 2016, Montebello issued the Supplemented POS providing 
additional disclosures to investors, and on December 21, 2016, the District circulated the FOS 
which was signed by Martinez.  Neither document disclosed the Audit Firm’s stated concerns, 
Montebello’s denial of fees that were required for the expanded procedures identified by the Audit 
Firm and the completion of the fiscal year 2016 audit, or the District’s decision to terminate the 

 
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Audit Firm.  Rojas reviewed drafts of the Supplemented POS and FOS, and approved their 
circulation before they were sent to investors. 
 
21. On December 22, 2016, Rojas informed the Audit Firm by phone that it had been 
terminated by Montebello and instructed the firm to stop performing all audit work. 
 
In the Offering Documents, Montebello Failed to Disclose the Audit Firm’s Concerns and 
Termination to Investors 
 
22. Montebello circulated the POS to investors late in the evening on December 7, 
2016.  By that time, the Audit Firm had sent its December 1, 2016 letter, which raised concerns 
about Rojas and allegations of impropriety at Montebello, and also indicated that those issues 
could impact the Audit Firm’s ability to complete its fiscal year 2016 audit.  The POS did not 
disclose this information.  Instead, it stated that the Audit Firm “serves as independent auditor to 
the District” and attached an old audit report covering fiscal year 2015.  The old report contained 
an unmodified or “clean” audit opinion and also noted that the Audit Firm had not identified any 
material weaknesses in Montebello’s internal controls over financial reporting.      
 
23. Montebello issued the Supplemented POS to investors on December 19, 2016, and 
circulated the FOS on December 21, 2016.  By the time of both of those documents, the Audit 
Firm had sent its December 9, 2016 letter and December 12, 2016 email further detailing its 
concerns about allegations of fraud and internal controls, requesting permission to perform 
expanded audit procedures, and specifically noting that the Audit Firm could not complete the 
fiscal year 2016 audit under governing auditing standards without the additional procedures.  The 
Audit Firm lead partner had also discussed these same issues by phone with Martinez, 
Montebello’s General Counsel, and Rojas.  Additionally, Montebello had already determined not 
to approve the fees needed for the Audit Firm to perform the required expanded procedures during 
a non-public Board meeting discussion and also decided to terminate the Audit Firm.  
Nevertheless, the Supplemented POS and FOS did not disclose this information.  Instead, the 
documents repeated the POS’s statement that the Audit Firm “serves as independent auditor to the 
District” and attached the same stale audit report.    
 
24. On or about December 28, 2016, Martinez signed two closing certificates on behalf 
of the District representing that: (1) he had reviewed the Offering Documents; and (2) the 
documents did not contain any material misstatements or omissions.  Both of those representations 
were false.  Martinez did not review the Offering Documents before signing the certificates.  He 
also did not consult with any other person about the Offering Documents and did not conduct any 
diligence before signing the certificates.  Additionally, as discussed above, the Offering 
Documents contained misleading statements and omissions regarding the Audit Firm’s stated 
concerns and termination.  The false certifications were provided to bond and disclosure counsel 
and the underwriters who purchased the bonds from Montebello to facilitate the completion of the 
bond offering.    
 

 
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Montebello Engaged in Additional Conduct that Concealed the Audit Firm’s Concerns and 
Termination from Gatekeepers and Investors 
 
25. Montebello engaged in additional conduct that concealed the Audit Firm’s stated 
concerns.  On December 14, 2016, the District sent a letter to LACOE, which was also provided to 
the California State Controller’s Office, requesting an extension to the December 15 deadline for 
the filing of its fiscal year 2016 audit report.  Among other things, the letter stated that the Audit 
Firm had “informed the District that an extension should be filed as the Auditors ‘require 
additional supporting documentation in connection with expanded test work in certain areas.’”  
The letter was misleading, however, because it did not disclose the concerns raised by the Audit 
Firm or that the Audit Firm’s “expanded test work” related to concerns about allegations of fraud 
and internal controls issues identified by the Audit Firm.  Rojas wrote the letter and Martinez 
signed it.   
 
26. In addition, in December 2016, while Rojas was working with bond and disclosure 
counsel on the Supplemented POS, counsel asked whether the fiscal year 2016 audit had been 
completed.  Rojas responded on December 19, 2016 by stating only that Montebello had received 
an extension of the filing deadline for the audit report.  Rojas did not also disclose to bond and 
disclosure counsel the concerns raised by the Audit Firm in its communications, that the Audit 
Firm had indicated that it needed to perform expanded procedures to address its concerns, or that 
Montebello had decided to terminate the Audit Firm.   
 
Legal Discussion 
 
27. Section 10(b) of the Exchange Act and Rule 10b-5(a) promulgated thereunder make 
it unlawful to “directly or indirectly ... employ any device, scheme, or artifice to defraud ... in 
connection with the purchase or sale of any security.”  17 C.F.R. § 240.10b-5(a).  Section 10(b) of 
the Exchange Act and Rule 10b-5(b) promulgated thereunder make it unlawful to “directly or 
indirectly ... make any untrue statement of a material fact or to omit to state a material fact 
necessary in order to make the statements made, in the light of the circumstances under which they 
were made, not misleading ...in connection with the purchase or sale of any security.”  17 C.F.R. § 
240.10b-5(b).  Section 10(b) of the Exchange Act and Rule 10b-5(c) promulgated thereunder make 
it unlawful to “directly or indirectly ... engage in any act, practice, or course of business which 
operates or would operate as a fraud or deceit upon any person ... in connection with the purchase 
or sale of any security.”  17 C.F.R. § 240.10b-5(c).   
 
28. “For purposes of Rule 10b-5, the maker of a statement is the person or entity with 
ultimate authority over the statement, including its content and whether and how to communicate 
it.”  Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2302 (2011).   
 
29. Section 17(a)(1) of the Securities Act makes it unlawful “in the offer or sale of any 
securities ... directly or indirectly ... to employ any device, scheme, or artifice to defraud.”  15 
U.S.C. § 77q(a)(1).  Section 17(a)(2) of the Securities Act makes it unlawful “in the offer or sale of 
any securities ... directly or indirectly ... to obtain money or property by means of any untrue 
statement of a material fact or any omission to state a material fact necessary in order to make the 

 
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statements made, in light of the circumstances under which they were made, not misleading.”  15 
U.S.C. § 77q(a)(2).  Section 17(a)(3) of the Securities Act makes it unlawful “in the offer or sale of 
any securities ... directly or indirectly ... to engage in any transaction, practice, or course of 
business which operates or would operate as a fraud or deceit upon the purchaser.”  15 U.S.C. § 
77q(a)(3). 
 
30. A statement or omission is material if there is a substantial likelihood that a 
reasonable investor would consider it important in making an investment decision.  Basic Inc. v. 
Levinson, 485 U.S. 224, 231-32 (1988).   
 
31. Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well 
as violations of Section 17(a)(1) of the Securities Act, require proof of scienter.  Aaron v. SEC, 446 
U.S. 680, 701-02 (1980).  Scienter can be satisfied through recklessness.  SEC v. Dain Rauscher, 
Inc., 254 F.3d 852, 856 (9th Cir. 2001).  “Reckless conduct is conduct that consists of a highly 
unreasonable act, or omission, that is an ‘extreme departure from the standards of ordinary care, 
and which presents a danger of misleading buyers or sellers that is either known to the defendant or 
is so obvious that the actor must have been aware of it.’”  Id.  Negligence is sufficient to establish 
violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act.  See Aaron, 446 U.S. at 696-97.           
 
32. As a result of the conduct described above, Montebello violated Section 10(b) of 
the Exchange Act and Rule 10b-5 thereunder as well as Section 17(a) of the Securities Act. 
 
33. As a result of the conduct described above, Martinez violated Section 17(a)(3) of 
the Securities Act. 
 
Undertakings 
 
Montebello undertakes to: 
 
34. Within 180 days of the Order, establish appropriate and comprehensive written 
policies and procedures and periodic training regarding all aspects of Montebello’s municipal 
securities disclosures, including formal policies and procedures to be followed for the preparation, 
review and approval of official statements and continuing disclosures, and the designation of an 
individual officer of Montebello responsible for ensuring compliance by Montebello with such 
policies and procedures and responsible for implementing and maintaining a record (including 
attendance) of such training. 
 
35. Retain an independent consultant with municipal finance experience  (the 
“Independent Consultant”), not unacceptable to the Commission staff, to conduct a review of 
Montebello’s policies and procedures as they relate to all aspects of Montebello’s municipal 
securities disclosures.  The Independent Consultant shall not have provided consulting, legal, 
auditing or other professional services to, nor had any affiliation with, Montebello during the two 
years prior to the institution of these proceedings. 
 

 
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36. Require the Independent Consultant to enter into an agreement that provides that for 
the period of engagement and for a period of two years from completion of the engagement, the 
Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or 
other professional relationship with Montebello, or any of its present or former affiliates, directors, 
officers, employees, or agents acting in their capacity.  The agreement will also provide that the 
Independent Consultant will require that any firm with which he/she is affiliated or of which he/she 
is a member, and any person engaged to assist the Independent Consultant in performance of his/her 
duties under this Order shall not, without prior written consent of the Division of Enforcement, 
enter into any employment, consultant, attorney-client, auditing or other professional relationship 
with Montebello, or any of its present or former affiliates, directors, officers, employees, or agents 
acting in their capacity as such for the period of the engagement and for a period of two years after 
the engagement. The agreement will also provide that, within 180 days of the institution of these 
proceedings, the Independent Consultant shall submit a written report of its findings to Montebello, 
which shall include the Independent Consultant’s recommendations for improvements to 
Montebello’s policies and procedures.  
 
37. Adopt all recommendations contained in the Independent Consultant’s report within 
90 days of the date of that report, provided, however, that within 30 days of the report, Montebello 
shall advise in writing the Independent Consultant and the Commission staff of any 
recommendations that Montebello considers to be unduly burdensome, impractical, or 
inappropriate.  With respect to any such recommendation, Montebello need not adopt that 
recommendation at that time but shall propose in writing an alternative policy, procedures, or 
system designed to achieve the same objective or purpose.  As to any recommendation on which 
Montebello and the Independent Consultant do not agree, Montebello and the Independent 
Consultant shall attempt in good faith to reach an agreement within 60 days after the date of the 
Report.  Within 15 days after the conclusion of the discussion and evaluation by Montebello and the 
Independent Consultant, Montebello shall require the Independent Consultant inform Montebello 
and the Commission staff in writing of the Independent Consultant’s final determination concerning 
any recommendation that Montebello considers to be unduly burdensome, impractical, or 
inappropriate.  Within 10 days of this written communication from the Independent Consultant, 
Montebello may seek approval from the Commission staff to not adopt recommendations that 
Montebello can demonstrate to be unduly burdensome, impractical, or inappropriate.  Should the 
Commission staff agree that any proposed recommendations are unduly burdensome, impractical, 
or inappropriate, Montebello shall not be required to abide by, adopt, or implement those 
recommendations. 
 
38. Disclose in a clear and conspicuous fashion the terms of this settlement in any final 
official statement for an offering by Montebello within five years of the institution of these 
proceedings. 
 
39. Certify, in writing, compliance with the undertakings set forth above in paragraphs 
34-38.  The certification shall identify the undertakings, provide written evidence of compliance in 
the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  The 
Commission staff may make reasonable requests for further evidence of compliance, and 
Montebello agrees to provide such evidence.  The certification and supporting material shall be 

 
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submitted to LeeAnn G. Gaunt, Chief, Public Finance Abuse Unit, with a copy to the Office of 
Chief Counsel of the Division of Enforcement, no later than sixty (60) days from the date of the 
completion of the undertakings. 
 
40. For good cause shown, the Commission staff may extend any of the procedural dates 
relating to these undertakings.  Deadlines for procedural dates shall be counted in calendar days, 
except that if the last day falls on a weekend or federal holiday, the next business day shall be 
considered the last day. 
 
Respondents’ Remedial Efforts 
 
41. In determining to accept the Offer, the Commission considered remedial acts 
undertaken by Respondents related to Montebello’s securities disclosure practices, including 
making corrective disclosures and participating in training regarding their disclosure obligations.  
 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondents’ Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 8A of the Securities Act, Respondent Montebello cease and 
desist from committing or causing any violations and any future violations of Section 17(a) of the 
Securities Act.  
 
 B. Pursuant to Section 21C of the Exchange Act, Respondent Montebello cease and 
desist from committing or causing any violations and any future violations of Section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder. 
 
 C. Respondent Montebello shall comply with the undertakings enumerated in 
paragraphs 34 to 39 above. 
 
 D. Pursuant to Section 8A of the Securities Act, Respondent Martinez cease and desist 
from committing or causing any violations and any future violations of Section 17(a)(3) of the 
Securities Act. 
 
 E. Respondent Martinez shall, within 10 days of the entry of this Order, pay a civil 
money penalty in the amount of $10,000 to the Securities and Exchange Commission for transfer 
to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  
Payment must be made in one of the following ways:   
 

 
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(1) Respondent Martinez may transmit payment electronically to the 
Commission, which will provide detailed ACH transfer/Fedwire 
instructions upon request;  
 
(2) Respondent Martinez may make direct payment from a bank account via 
Pay.gov through the SEC website at 
http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent Martinez may pay by certified check, bank cashier’s check, or 
United States postal money order, made payable to the Securities and 
Exchange Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying Anthony J. 
Martinez as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
the cover letter and check or money order must be sent to LeeAnn G. Gaunt, Chief, Public Finance 
Abuse Unit, Securities and Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 
02110-1424.  
 
 F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
treated as penalties paid to the government for all purposes, including all tax purposes.  To 
preserve the deterrent effect of the civil penalty, Respondent Martinez agrees that in any Related 
Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction 
of any award of compensatory damages by the amount of any part of Respondent Martinez’s 
payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 
Action grants such a Penalty Offset, Respondent Martinez agrees that he shall, within 30 days after 
entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action 
and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  Such a 
payment shall not be deemed an additional civil penalty and shall not be deemed to change the 
amount of the civil penalty imposed in this proceeding.  For purposes of this paragraph, a “Related 
Investor Action” means a private damages action brought against Respondent Martinez by or on 
behalf of one or more investors based on substantially the same facts as alleged in the Order 
instituted by the Commission in this proceeding.

 
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V. 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 
Respondent Martinez, and further, any debt for disgorgement, prejudgment interest, civil penalty or 
other amounts due by Respondent Martinez under this Order or any other judgment, order, consent 
order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 
violation by Respondent Martinez of the federal securities laws or any regulation or order issued 
under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 
523(a)(19). 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
Secretary 
 
 

UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

 

 

SECURITIES ACT OF 1933 

Release No. 10691 / September 19, 2019 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 87006 / September 19, 2019 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-19469 

 

In the Matter of 

 

MONTEBELLO UNIFIED 

SCHOOL DISTRICT AND 

ANTHONY JAMES 

MARTINEZ,  

 

 

Respondents. 

 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 8A OF THE SECURITIES ACT 

OF 1933 AND SECTION 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS, AND IMPOSING A 

CEASE-AND-DESIST ORDER  

  

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 

of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”), against Montebello Unified School District (“Montebello” or the “District”) and Anthony 

James Martinez (“Martinez”) (together, “Respondents”). 

 

II. 

 

 In anticipation of the institution of these proceedings, Respondents have submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 

to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the 



 2 

Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making Findings, 

and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   

 

III. 

 

 On the basis of this Order and Respondents’ Offer, the Commission finds1 that: 

 

Summary 

  

1. This matter involves misleading statements and omissions by Montebello Unified 

School District in the sale of municipal bonds.  Montebello, a school district located in Los 

Angeles County, California, sold $100 million in bonds to the public in December 2016 while not 

disclosing that: (1) its independent audit firm had raised concerns about allegations of fraud and 

internal controls at the District; (2) the District refused to authorize fees for required audit 

procedures, which precluded the audit firm from completing its audit; and (3) the District had 

decided to terminate the firm’s services.  Immediately before and contemporaneous with the 

offering, Montebello’s independent auditor, the Audit Firm, repeatedly raised concerns to 

Montebello’s management and its Board of Education about allegations of fraud and internal 

controls issues at the District.  The Audit Firm also requested, at additional cost to the District, 

authorization to perform expanded procedures surrounding its concerns.  Under applicable auditing 

standards, the Audit Firm was required to conduct these procedures before it could complete its 

audit of the District.  During a non-public Board meeting session, Montebello declined to authorize 

the fees needed for the expanded procedures, which precluded completion of the audit.  

Montebello also decided to terminate the Audit Firm.  In the offering documents for Montebello’s 

December 2016 bonds, Montebello did not disclose the concerns raised by the Audit Firm, that it 

had prevented the Audit Firm from performing necessary procedures, or that it had decided to 

terminate the Audit Firm’s services.  Instead, the offering documents misleadingly stated that the 

Audit Firm “serves as independent auditor to the District.”  Montebello also attached to the 

offering documents an audit report from the Audit Firm from a prior year that contained a clean 

audit opinion.  That statement, and the inclusion of the stale audit report, were materially 

misleading in light of the omitted information.  Montebello also concealed the Audit Firm’s 

concerns by providing incomplete and misleading updates about the status of its pending fiscal 

year 2016 financial statement audit to bond and disclosure counsel for the December 2016 offering 

as well as Montebello’s primary regulator, the Los Angeles County Office of Education 

(“LACOE”).   

 

2. Martinez, Montebello’s Interim Superintendent of Schools in December 2016, 

signed one of the misleading bond offering documents, a misleading letter to LACOE, and false 

closing certificates that were provided to bond and disclosure counsel and the underwriters in 

connection with the offering. 

 

3. By selling the bonds to investors using the misleading offering documents and by 

taking other steps that concealed the Audit Firm’s concerns and termination from investors, 

                                                 
1 The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on any other 

person or entity in this or any other proceeding. 



 3 

Montebello violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder as well as 

Section 17(a) of the Securities Act.  By signing the misleading offering document and the 

misleading letter to LACOE, and by providing bond and disclosure counsel and the underwriters 

with false closing certificates, Martinez violated Section 17(a)(3) of the Securities Act.  

 

Respondents 

 

4. Montebello Unified School District is a California public school district that was 

established in 1936.  Its territory spans multiple cities located in eastern Los Angeles County, 

California.  It is governed by a five-member elected Board of Education. 

 

5. Anthony James Martinez, age 48, is a resident of Palmdale, California.  He is the 

Superintendent of Schools of Montebello, a position he first held on an interim basis beginning in 

October 2016 and then on a permanent basis in February 2018.  Among other things, Martinez’s 

job responsibilities include providing oversight of Montebello’s approximately $300 million 

annual budget and $300 million bond program.  At the time of Montebello’s December 2016 

offering, Martinez had been in the role of Interim Superintendent for six weeks. 

 

Other Relevant Individual and Entity 

 

6. Ruben James Rojas, age 56, is a resident of Corona, California.  From July 2015 

to March 2017, he served as the Chief Business Officer of Montebello.  In that role he had primary 

responsibility over Montebello’s bond program and also oversaw the District’s business 

operations.  Rojas was terminated by Montebello in March 2017. 

 

7. The Audit Firm is an independent auditing firm with its principal place of business 

in Los Angeles, California.  It has been registered with the Public Company Accounting Oversight 

Board since 2003.  The Audit Firm served as Montebello’s independent auditor and audited the 

District’s financial statements for fiscal years 2014 and 2015.  The Audit Firm also served as 

Montebello’s independent auditor for fiscal year 2016, ending on June 30, 2016, but the District 

terminated its services before it could complete its audit for that year.          

 

Montebello Issued $100 Million in Bonds in December 2016 

 

8. On November 3, 2016, Montebello’s Board voted to approve the issuance of $100 

million in general obligation bonds.  The bonds were secured by and payable from ad valorem 

property taxes assessed on taxable properties within the District and collected by the County of Los 

Angeles.  The purpose of the bonds was to fund new facilities construction and maintenance within 

Montebello.   

 

9. Rojas managed the day-to-day operations of Montebello’s bond program and 

oversaw the $100 million bond offering, including the preparation of the offering documents for 

the bonds, which included a Preliminary Official Statement (“POS”), a Supplemented Preliminary 

Official Statement (“Supplemented POS”), and a Final Official Statement (“FOS”) (collectively, 

“Offering Documents”).  Rojas was the primary contact for the bond and disclosure counsel and 



 4 

municipal advisor retained by Montebello to assist with the bond offering.  Rojas was also the 

primary person through which bond and disclosure counsel, the municipal advisor, the 

underwriters, and underwriters’ counsel received information for inclusion in the Offering 

Documents for the bonds.  Martinez was not directly involved with the preparation of the Offering 

Documents.   

 

10. On December 7, 2016, Montebello issued the POS.  The bonds priced on December 

13, 2016.  On December 19, 2016, Montebello issued the Supplemented POS, and on December 

21, 2016, Montebello issued the FOS.  Rojas reviewed and provided edits to the POS, helped 

prepare the Supplemented POS, and also reviewed the FOS.  Martinez signed the FOS.    

 

11. The bond offering closed on December 28, 2016.  Montebello received the cash 

proceeds generated by the offering, less fees paid to the professional firms which provided services 

in connection with the deal. 

 

The Audit Firm Repeatedly Raised Concerns about Allegations of Fraud and Internal 

Controls Before and Concurrent with the December 2016 Bond Offering 

 

12. During the first two weeks of December 2016 and in connection with its audit of 

Montebello’s financial statements for the fiscal year 2016, the Audit Firm repeatedly raised 

concerns to Montebello’s Board and management regarding allegations of fraud and internal 

controls issues at the District.  On December 1, 2016, the Audit Firm sent a letter to Montebello 

noting that it had been made aware of allegations of improprieties at the District as well as 

questions concerning Rojas’s qualifications and integrity, which could impact the firm’s ability to 

complete its pending audit of Montebello’s fiscal year 2016 financial statements.  Additionally, the 

Audit Firm requested a closed session meeting with Montebello’s Board to discuss its concerns.  

Martinez and Montebello’s Board president received a copy of the letter on December 2, 2016.  By 

the morning of December 7, 2016, Rojas had also received a copy of the letter and discussed it 

with Martinez.  In the late evening of December 7, 2016, Montebello circulated the POS to 

investors, which did not disclose the existence of the Audit Firm’s December 1, 2016 letter or the 

letter’s contents.  Rojas reviewed drafts of the POS and approved its circulation before it was sent 

to investors.      

 

13. On December 9, 2016, the Audit Firm sent a second letter to Montebello, which 

was circulated to Rojas, Martinez, and each of Montebello’s five Board members.  The Audit 

Firm’s second letter noted that additional matters had arisen that could potentially prevent the 

completion of the fiscal year 2016 audit.  Among other things, the Audit Firm explained that: (1) 

certain audit procedures had been delayed due to the actions of Montebello’s management; (2) 

expanded procedures were necessary in order for the Audit Firm to complete the audit and render 

an audit opinion; and (3) Montebello needed to request an extension of the December 15 deadline 

for the filing of its audited financial statements with LACOE.  The Audit Firm also reiterated its 

request for a closed session meeting with Montebello’s Board to discuss its concerns and to obtain 

authorization to perform the required additional audit procedures.   

 



 5 

14. On or about the same time that the Audit Firm sent its December 9, 2016 letter, the 

Audit Firm’s lead partner working on Montebello’s audit spoke by phone with Montebello’s 

General Counsel.  During that call, the lead partner noted that the Audit Firm had concerns related 

to allegations of fraud and misconduct at Montebello, including specifically with respect to Rojas, 

and that the Audit Firm could not complete its audit without performing expanded procedures 

related to those concerns.    

 

15. On December 12, 2016, the lead partner sent an email to Montebello’s General 

Counsel further detailing the Audit Firm’s concerns as well as laying out specific steps that were 

required to be completed under governing auditing standards before the Audit Firm could finish its 

audit work.  Montebello’s General Counsel forwarded the email to Martinez.  Then, on December 

13, 2016, Martinez, Montebello’s General Counsel, and the lead partner had a call to further 

discuss the Audit Firm’s concerns.  Montebello’s bonds also priced on that day. 

 

16. On or about December 14, 2016, the lead partner and Rojas had a call where the 

lead partner reiterated the various issues the Audit Firm had identified for Montebello.  Among 

other things, the lead partner noted that Montebello was now considered at a higher risk level from 

an audit standpoint, which necessitated the performance of expanded audit procedures before the 

pending audit could be completed.   

 

17. Montebello’s management and Board did not disclose the Audit Firm’s 

communications or their contents to the various securities professionals who were working on the 

December 2016 bond offering, including bond and disclosure counsel, the underwriters for the 

bonds, underwriters’ counsel, or Montebello’s municipal advisor.        

 

Montebello Prevented the Audit Firm From Performing Necessary Audit Procedures and 

Terminated its Services 

 

18. In a December 15, 2016 non-public Board meeting, Montebello’s Board, Rojas, 

Martinez, and Montebello’s General Counsel discussed the Audit Firm’s request to perform 

expanded audit procedures, which would require additional time and fees.  During that non-public 

discussion, Montebello’s Board and management decided to deny the Audit Firm’s request, which 

precluded the Audit Firm from being able to complete its pending audit or issue an audit opinion.  

The publicly available agenda and minutes for the December 15, 2016 Board meeting, including 

the closed session, do not make any reference to the Audit Firm, any decision made with respect to 

the Audit Firm, or the status of the pending fiscal year 2016 audit.   

 

19. On or about December 15, 2016, Montebello decided to terminate the Audit Firm’s 

engagement to conduct the audit of the District’s fiscal year 2016 financial statements.  

 

20. On December 19, 2016, Montebello issued the Supplemented POS providing 

additional disclosures to investors, and on December 21, 2016, the District circulated the FOS 

which was signed by Martinez.  Neither document disclosed the Audit Firm’s stated concerns, 

Montebello’s denial of fees that were required for the expanded procedures identified by the Audit 

Firm and the completion of the fiscal year 2016 audit, or the District’s decision to terminate the 



 6 

Audit Firm.  Rojas reviewed drafts of the Supplemented POS and FOS, and approved their 

circulation before they were sent to investors. 

 

21. On December 22, 2016, Rojas informed the Audit Firm by phone that it had been 

terminated by Montebello and instructed the firm to stop performing all audit work. 

 

In the Offering Documents, Montebello Failed to Disclose the Audit Firm’s Concerns and 

Termination to Investors 

 

22. Montebello circulated the POS to investors late in the evening on December 7, 

2016.  By that time, the Audit Firm had sent its December 1, 2016 letter, which raised concerns 

about Rojas and allegations of impropriety at Montebello, and also indicated that those issues 

could impact the Audit Firm’s ability to complete its fiscal year 2016 audit.  The POS did not 

disclose this information.  Instead, it stated that the Audit Firm “serves as independent auditor to 

the District” and attached an old audit report covering fiscal year 2015.  The old report contained 

an unmodified or “clean” audit opinion and also noted that the Audit Firm had not identified any 

material weaknesses in Montebello’s internal controls over financial reporting.      

 

23. Montebello issued the Supplemented POS to investors on December 19, 2016, and 

circulated the FOS on December 21, 2016.  By the time of both of those documents, the Audit 

Firm had sent its December 9, 2016 letter and December 12, 2016 email further detailing its 

concerns about allegations of fraud and internal controls, requesting permission to perform 

expanded audit procedures, and specifically noting that the Audit Firm could not complete the 

fiscal year 2016 audit under governing auditing standards without the additional procedures.  The 

Audit Firm lead partner had also discussed these same issues by phone with Martinez, 

Montebello’s General Counsel, and Rojas.  Additionally, Montebello had already determined not 

to approve the fees needed for the Audit Firm to perform the required expanded procedures during 

a non-public Board meeting discussion and also decided to terminate the Audit Firm.  

Nevertheless, the Supplemented POS and FOS did not disclose this information.  Instead, the 

documents repeated the POS’s statement that the Audit Firm “serves as independent auditor to the 

District” and attached the same stale audit report.    

 

24. On or about December 28, 2016, Martinez signed two closing certificates on behalf 

of the District representing that: (1) he had reviewed the Offering Documents; and (2) the 

documents did not contain any material misstatements or omissions.  Both of those representations 

were false.  Martinez did not review the Offering Documents before signing the certificates.  He 

also did not consult with any other person about the Offering Documents and did not conduct any 

diligence before signing the certificates.  Additionally, as discussed above, the Offering 

Documents contained misleading statements and omissions regarding the Audit Firm’s stated 

concerns and termination.  The false certifications were provided to bond and disclosure counsel 

and the underwriters who purchased the bonds from Montebello to facilitate the completion of the 

bond offering.    

 



 7 

Montebello Engaged in Additional Conduct that Concealed the Audit Firm’s Concerns and 

Termination from Gatekeepers and Investors 

 

25. Montebello engaged in additional conduct that concealed the Audit Firm’s stated 

concerns.  On December 14, 2016, the District sent a letter to LACOE, which was also provided to 

the California State Controller’s Office, requesting an extension to the December 15 deadline for 

the filing of its fiscal year 2016 audit report.  Among other things, the letter stated that the Audit 

Firm had “informed the District that an extension should be filed as the Auditors ‘require 

additional supporting documentation in connection with expanded test work in certain areas.’”  

The letter was misleading, however, because it did not disclose the concerns raised by the Audit 

Firm or that the Audit Firm’s “expanded test work” related to concerns about allegations of fraud 

and internal controls issues identified by the Audit Firm.  Rojas wrote the letter and Martinez 

signed it.   

 

26. In addition, in December 2016, while Rojas was working with bond and disclosure 

counsel on the Supplemented POS, counsel asked whether the fiscal year 2016 audit had been 

completed.  Rojas responded on December 19, 2016 by stating only that Montebello had received 

an extension of the filing deadline for the audit report.  Rojas did not also disclose to bond and 

disclosure counsel the concerns raised by the Audit Firm in its communications, that the Audit 

Firm had indicated that it needed to perform expanded procedures to address its concerns, or that 

Montebello had decided to terminate the Audit Firm.   

 

Legal Discussion 

 

27. Section 10(b) of the Exchange Act and Rule 10b-5(a) promulgated thereunder make 

it unlawful to “directly or indirectly … employ any device, scheme, or artifice to defraud … in 

connection with the purchase or sale of any security.”  17 C.F.R. § 240.10b-5(a).  Section 10(b) of 

the Exchange Act and Rule 10b-5(b) promulgated thereunder make it unlawful to “directly or 

indirectly … make any untrue statement of a material fact or to omit to state a material fact 

necessary in order to make the statements made, in the light of the circumstances under which they 

were made, not misleading …in connection with the purchase or sale of any security.”  17 C.F.R. § 

240.10b-5(b).  Section 10(b) of the Exchange Act and Rule 10b-5(c) promulgated thereunder make 

it unlawful to “directly or indirectly … engage in any act, practice, or course of business which 

operates or would operate as a fraud or deceit upon any person … in connection with the purchase 

or sale of any security.”  17 C.F.R. § 240.10b-5(c).   

 

28. “For purposes of Rule 10b-5, the maker of a statement is the person or entity with 

ultimate authority over the statement, including its content and whether and how to communicate 

it.”  Janus Capital Grp., Inc. v. First Derivative Traders, 131 S. Ct. 2296, 2302 (2011).   

 

29. Section 17(a)(1) of the Securities Act makes it unlawful “in the offer or sale of any 

securities … directly or indirectly … to employ any device, scheme, or artifice to defraud.”  15 

U.S.C. § 77q(a)(1).  Section 17(a)(2) of the Securities Act makes it unlawful “in the offer or sale of 

any securities … directly or indirectly … to obtain money or property by means of any untrue 

statement of a material fact or any omission to state a material fact necessary in order to make the 



 8 

statements made, in light of the circumstances under which they were made, not misleading.”  15 

U.S.C. § 77q(a)(2).  Section 17(a)(3) of the Securities Act makes it unlawful “in the offer or sale of 

any securities … directly or indirectly … to engage in any transaction, practice, or course of 

business which operates or would operate as a fraud or deceit upon the purchaser.”  15 U.S.C. § 

77q(a)(3). 

 

30. A statement or omission is material if there is a substantial likelihood that a 

reasonable investor would consider it important in making an investment decision.  Basic Inc. v. 

Levinson, 485 U.S. 224, 231-32 (1988).   

 

31. Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as well 

as violations of Section 17(a)(1) of the Securities Act, require proof of scienter.  Aaron v. SEC, 446 

U.S. 680, 701-02 (1980).  Scienter can be satisfied through recklessness.  SEC v. Dain Rauscher, 

Inc., 254 F.3d 852, 856 (9th Cir. 2001).  “Reckless conduct is conduct that consists of a highly 

unreasonable act, or omission, that is an ‘extreme departure from the standards of ordinary care, 

and which presents a danger of misleading buyers or sellers that is either known to the defendant or 

is so obvious that the actor must have been aware of it.’”  Id.  Negligence is sufficient to establish 

violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act.  See Aaron, 446 U.S. at 696-97.           

 

32. As a result of the conduct described above, Montebello violated Section 10(b) of 

the Exchange Act and Rule 10b-5 thereunder as well as Section 17(a) of the Securities Act. 

 

33. As a result of the conduct described above, Martinez violated Section 17(a)(3) of 

the Securities Act. 

 

Undertakings 

 

Montebello undertakes to: 

 

34. Within 180 days of the Order, establish appropriate and comprehensive written 

policies and procedures and periodic training regarding all aspects of Montebello’s municipal 

securities disclosures, including formal policies and procedures to be followed for the preparation, 

review and approval of official statements and continuing disclosures, and the designation of an 

individual officer of Montebello responsible for ensuring compliance by Montebello with such 

policies and procedures and responsible for implementing and maintaining a record (including 

attendance) of such training. 

 

35. Retain an independent consultant with municipal finance experience  (the 

“Independent Consultant”), not unacceptable to the Commission staff, to conduct a review of 

Montebello’s policies and procedures as they relate to all aspects of Montebello’s municipal 

securities disclosures.  The Independent Consultant shall not have provided consulting, legal, 

auditing or other professional services to, nor had any affiliation with, Montebello during the two 

years prior to the institution of these proceedings. 

 



 9 

36. Require the Independent Consultant to enter into an agreement that provides that for 

the period of engagement and for a period of two years from completion of the engagement, the 

Independent Consultant shall not enter into any employment, consultant, attorney-client, auditing or 

other professional relationship with Montebello, or any of its present or former affiliates, directors, 

officers, employees, or agents acting in their capacity.  The agreement will also provide that the 

Independent Consultant will require that any firm with which he/she is affiliated or of which he/she 

is a member, and any person engaged to assist the Independent Consultant in performance of his/her 

duties under this Order shall not, without prior written consent of the Division of Enforcement, 

enter into any employment, consultant, attorney-client, auditing or other professional relationship 

with Montebello, or any of its present or former affiliates, directors, officers, employees, or agents 

acting in their capacity as such for the period of the engagement and for a period of two years after 

the engagement. The agreement will also provide that, within 180 days of the institution of these 

proceedings, the Independent Consultant shall submit a written report of its findings to Montebello, 

which shall include the Independent Consultant’s recommendations for improvements to 

Montebello’s policies and procedures.  

 

37. Adopt all recommendations contained in the Independent Consultant’s report within 

90 days of the date of that report, provided, however, that within 30 days of the report, Montebello 

shall advise in writing the Independent Consultant and the Commission staff of any 

recommendations that Montebello considers to be unduly burdensome, impractical, or 

inappropriate.  With respect to any such recommendation, Montebello need not adopt that 

recommendation at that time but shall propose in writing an alternative policy, procedures, or 

system designed to achieve the same objective or purpose.  As to any recommendation on which 

Montebello and the Independent Consultant do not agree, Montebello and the Independent 

Consultant shall attempt in good faith to reach an agreement within 60 days after the date of the 

Report.  Within 15 days after the conclusion of the discussion and evaluation by Montebello and the 

Independent Consultant, Montebello shall require the Independent Consultant inform Montebello 

and the Commission staff in writing of the Independent Consultant’s final determination concerning 

any recommendation that Montebello considers to be unduly burdensome, impractical, or 

inappropriate.  Within 10 days of this written communication from the Independent Consultant, 

Montebello may seek approval from the Commission staff to not adopt recommendations that 

Montebello can demonstrate to be unduly burdensome, impractical, or inappropriate.  Should the 

Commission staff agree that any proposed recommendations are unduly burdensome, impractical, 

or inappropriate, Montebello shall not be required to abide by, adopt, or implement those 

recommendations. 

 

38. Disclose in a clear and conspicuous fashion the terms of this settlement in any final 

official statement for an offering by Montebello within five years of the institution of these 

proceedings. 

 

39. Certify, in writing, compliance with the undertakings set forth above in paragraphs 

34-38.  The certification shall identify the undertakings, provide written evidence of compliance in 

the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.  The 

Commission staff may make reasonable requests for further evidence of compliance, and 

Montebello agrees to provide such evidence.  The certification and supporting material shall be 



 10 

submitted to LeeAnn G. Gaunt, Chief, Public Finance Abuse Unit, with a copy to the Office of 

Chief Counsel of the Division of Enforcement, no later than sixty (60) days from the date of the 

completion of the undertakings. 

 

40. For good cause shown, the Commission staff may extend any of the procedural dates 

relating to these undertakings.  Deadlines for procedural dates shall be counted in calendar days, 

except that if the last day falls on a weekend or federal holiday, the next business day shall be 

considered the last day. 

 

Respondents’ Remedial Efforts 

 

41. In determining to accept the Offer, the Commission considered remedial acts 

undertaken by Respondents related to Montebello’s securities disclosure practices, including 

making corrective disclosures and participating in training regarding their disclosure obligations.  

 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondents’ Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 8A of the Securities Act, Respondent Montebello cease and 

desist from committing or causing any violations and any future violations of Section 17(a) of the 

Securities Act.  

 

 B. Pursuant to Section 21C of the Exchange Act, Respondent Montebello cease and 

desist from committing or causing any violations and any future violations of Section 10(b) of the 

Exchange Act and Rule 10b-5 thereunder. 

 

 C. Respondent Montebello shall comply with the undertakings enumerated in 

paragraphs 34 to 39 above. 

 

 D. Pursuant to Section 8A of the Securities Act, Respondent Martinez cease and desist 

from committing or causing any violations and any future violations of Section 17(a)(3) of the 

Securities Act. 

 

 E. Respondent Martinez shall, within 10 days of the entry of this Order, pay a civil 

money penalty in the amount of $10,000 to the Securities and Exchange Commission for transfer 

to the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 

timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  

Payment must be made in one of the following ways:   

 



 11 

(1) Respondent Martinez may transmit payment electronically to the 

Commission, which will provide detailed ACH transfer/Fedwire 

instructions upon request;  

 

(2) Respondent Martinez may make direct payment from a bank account via 

Pay.gov through the SEC website at 

http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent Martinez may pay by certified check, bank cashier’s check, or 

United States postal money order, made payable to the Securities and 

Exchange Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying Anthony J. 

Martinez as a Respondent in these proceedings, and the file number of these proceedings; a copy of 

the cover letter and check or money order must be sent to LeeAnn G. Gaunt, Chief, Public Finance 

Abuse Unit, Securities and Exchange Commission, 33 Arch Street, 23rd Floor, Boston, MA 

02110-1424.  

 

 F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes.  To 

preserve the deterrent effect of the civil penalty, Respondent Martinez agrees that in any Related 

Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction 

of any award of compensatory damages by the amount of any part of Respondent Martinez’s 

payment of a civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor 

Action grants such a Penalty Offset, Respondent Martinez agrees that he shall, within 30 days after 

entry of a final order granting the Penalty Offset, notify the Commission’s counsel in this action 

and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  Such a 

payment shall not be deemed an additional civil penalty and shall not be deemed to change the 

amount of the civil penalty imposed in this proceeding.  For purposes of this paragraph, a “Related 

Investor Action” means a private damages action brought against Respondent Martinez by or on 

behalf of one or more investors based on substantially the same facts as alleged in the Order 

instituted by the Commission in this proceeding.



 12 

 

V. 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 

Respondent Martinez, and further, any debt for disgorgement, prejudgment interest, civil penalty or 

other amounts due by Respondent Martinez under this Order or any other judgment, order, consent 

order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 

violation by Respondent Martinez of the federal securities laws or any regulation or order issued 

under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. § 

523(a)(19). 

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

Secretary