RAMAPO, NY — The former executive director of the Ramapo Local Development Corporation pleaded guilty Tuesday to conspiracy to commit securities fraud with the Ramapo Town Supervisor.
“As we said at the time of his arrest, N. Aaron Troodler defrauded both the citizens of Ramapo and thousands of investors around the country, helping to sell over $150 million of municipal bonds on fabricated financials,” U.S. Attorney Preet Bharara said in the announcement. “Today, Troodler has admitted to committing securities fraud.”
This case is believed to be the first conviction for federal securities fraud in connection with municipal bond issuances.
Aaron Troodler was also the town’s assistant town attorney when he and Christopher St. Lawrence are alleged to have have devised a complex securities fraud scheme so they could hide public funds being used for the construction of a stadium and other projects.
Prosecutors said they lied to investors buying the Town’s and RLDC’s bonds —in order to conceal both the inability of the RLDC to make scheduled payments of principal and interest to its bondholders from its own money and the deteriorating state of the Town’s finances.
They lied primarily by making up false assets in the Town’s General Fund, Bharara alleged. The town faced deficits for years but the phony assets concealed that.
The RDLC, created and owned by the town, had one disastrous investment — Provident Bank Park (now Palisades Credit Union Park). And it had one major contribution to cooking the books involving a property known as The Hamlets.
As of August 2015, the Town had more than $128 million in outstanding bonds that had been issued for various municipal purposes, while the RLDC, a corporation created and owned by the Town under state law, had issued $25 million in bonds to pay for the construction of the minor league baseball stadium.
While the fraud predated the construction of the stadium, the Town’s financial problems were caused largely by the $58 million total cost of the stadium, prosecutors said Tuesday.
The Town paid more than half of that cost, despite the fact that residents had rejected paying for construction of the stadium in a Townwide referendum in 2010 and despite St. Lawrence’s public statements that no public money would be used to pay for it.
Prosecutors allege the defendants lied to investors primarily by making up false assets in the Town’s primary operating fund to inflate the size of the fund balance. Trends in a town’s General Fund balance over time are the primary indicators of the town’s financial health.
The Indictment alleges that St. Lawrence lied to the RLDC’s bond rating service in January 2013 when he told them in a telephone call that the 2012 fund balance would remain unchanged from the 2011 balance. Immediately after that call ended, St. Lawrence told Town employees “to do [an upcoming] refinancing of the short term debt as fast as possible because . . . we’re going to have to all be magicians to get to some of those numbers.”
The Indictment and the Superseding Information to which Troodler pleaded guilty Tuesday also allege that the two told investors in the Town’s and RLDC’s bonds that the RLDC was making the payments on its bonds from its operating revenue, meaning money it was making from its ordinary business of running the baseball stadium and selling condominiums at a development it had built.
That was important to investors because it led them to believe that the Town would not have to pay off the RLDC’s $25 million bonds. It also made the RLDC’s bonds look less risky.
Instead, the RLDC actually made those payments from money Troodler borrowed from the bank or money Troodler obtained from the Town at St. Lawrence’s direction, prosecutors allege.
Moreover, when the RLDC issued $25 million in bonds to build the stadium building itself in 2011, St. Lawrence inflated the size of the Town’s General Fund by including a false $3.6 million receivable in the General Fund, prosecutors allege.
The Town’s financial condition was important to investors in the RLDC’s bonds because the Town guaranteed the payments of principal and interest on the bonds. Without that fake asset, the General Fund’s balance would have been negative in that year.
In addition, St. Lawrence is alleged to have inflated the General Fund with another fake receivable for $3.08 million from 2010 through 2015.
It first went on the Town’s books when the RLDC agreed to buy The Hamlets from the Town for $3.08 million. That sale never closed because the land turned out to be a habitat for rattlesnakes.
Rather than take the receivable off the Town’s books – and reduce the size of the General Fund balance by $3.08 million, thereby creating a negative balance – St. Lawrence claimed the receivable had to do with the RLDC’s purchase of another property from the Town that had already taken place.
To keep it on the books, St. Lawrence then caused the Town Attorney to tell the Town’s auditors over a period of years that the receivable would be paid back within a year, which was required if the receivable was going to stay in the General Fund. Without this fake receivable alone, the Town’s General Fund balance would have been negative for years, prosecutors said.
In May 2013, the Federal Bureau of Investigation searched Town Hall in connection with this investigation.
Less than 10 days later, St. Lawrence inflated another receivable in the General Fund – this one for money from the Federal Emergency Management Agency (“FEMA”) to reimburse the Town for expenses from Hurricanes Irene and Sandy, prosecutors allege.
St. Lawrence claimed that the Town was going to receive $3.145 million from FEMA when the Town hadn’t even submitted those claims to FEMA yet, prosecutors said, adding that without St. Lawrence’s inflation of this receivable alone, the projected General Fund balance for 2012 would have been negative when the Town sold bonds in May 2013.
Finally, the Indictment alleges that St. Lawrence also inflated the General Fund balance by making more than $12 million in transfers from the Town’s Ambulance Fund to the General Fund from 2009 to 2014. The group of properties in Ramapo that pays into the Ambulance Fund is different from the group of properties that pays into the General Fund. Under state law, transfers between funds with different tax bases can only be loans.
Prosecutors allege that St. Lawrence told the auditors that the two funds had the same tax base to justify the transfers.
Troodler, 42, of Bala Cynwyd, Pennsylvania, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy, which carries a maximum sentence of five years in prison.
The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge. Troodler is scheduled to be sentenced by Judge Seibel on Sept. 18.
The charges against St. Lawrence contained in the Indictment are merely accusations, and he is presumed innocent unless and until proven guilty.
Troodler, St. Lawrence and Nathan Oberman, the town’s deputy finance director, also face fraud charges from the Security and Exchange Commission. In connection with that case, they argued in September that it wasn’t fraud because no one was hurt, according to the Bond Buyer Podcast.
Bharara praised the investigative work of the FBI and the Rockland County District Attorney’s Office. He also thanked the U.S. Securities and Exchange Commission for their assistance in the investigation.
This case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorneys James McMahon, Daniel Loss, and Stephen J. Ritchin are in charge of the prosecution.