Former Allen Park mayor, city administrator charged with fraud

Charges come after 3-year SEC investigation into Unity Studio; Burtka, Waidelich fined $10,000

Sunday Times Newspapers

ALLEN PARK – A former mayor and city administrator were charged with fraud Thursday by the U.S. Securities and Exchange Commission regarding $31 million in bonds sold to purchase the failed Unity Studios property, aka Southfield Lease Properties.

The SEC found during a three-year investigation that former Mayor Gary Burtka and former city administrator Eric Waidelich were involved in the purchase of the property which, according to the SEC, contained false and misleading statements about the scope of the property and its ability to serve the bond debt.

According to the SEC’s administrative order against Allen Park and its complaints against Burtka and Waidelich filed in federal court in Detroit, the city began planning the studio project in late 2008 with the belief it would bring much-needed economic development.

The state of Michigan had just enacted legislation that provided significant tax credits to film studios conducting business in Michigan.

The original plan detailed a $146 million facility with eight sound stages led by a Hollywood executive director, and the city initially planned to repay investors with $1.6 million in annual revenue from leases at the site.

Allen Park issued bonds on Nov. 12, 2009, and June 16, 2010, to raise funds to help develop the site.

The SEC’s order finds, however, that by the time the bonds were issued, Allen Park’s plans to implement and pay for the studio project had deteriorated into merely building and operating a vocational school on the site.

Yet none of these plan changes were reflected in the bond offering documents or other public statements, which continued to repeat the original plans for the movie studio project.

Investors were left uninformed not only about the deterioration of the project itself, but also the substantial impact it would have on the city’s ability to service the bond debt.

Without the planned revenues from the studio project, the expected annual debt payments on the bonds represented approximately 10 percent of the city’s total budget.

Furthermore, Allen Park used outdated budget information in the bond offering documents that did not reflect the city’s budget deficit of at least $2 million for fiscal year 2010.

The studio project completely collapsed within months after the second set of bonds were issued, and Michigan appointed an emergency manager for Allen Park in October 2010 while citing the failed project as a primary factor in the city’s deteriorating economic condition.

“Municipal bond disclosures must provide investors with an accurate portrayal of a project’s prospects and the municipality’s ability to repay those who invest,” said Andrew J. Ceresney, director of the SEC Enforcement Division. “Allen Park solicited investors with an unrealistic and untruthful pitch, and used outdated budget information in offering documents to avoid revealing its budget deficit.”

The SEC’s complaints allege that Waidelich reviewed and approved the offering of documents for the bonds, which were in violation. Without admitting or denying the allegations, Waidelich consented to a final judgment barring him from participating in any municipal bond offerings and enjoining him from future violations.

The SEC also alleges that Burtka is liable as a control person, based on his control of Waidelich and the city. Without admitting or denying the allegations, Burtka consented to a final judgment requiring him to pay the $10,000 penalty, barring him from participating in any municipal bond offerings, and enjoining him from future violations.

The SEC alleges that Burtka was an active champion of the project and in a position to control the actions of the city and Waidelich with respect to the fraudulent bond issuances. Based on this control, the SEC charged Burtka with liability for violations committed by the city and Waidelich.

This is the first time the SEC has charged a municipal official under a federal statute that provides for “control person” liability.

“They were cowards and left the city in financial ruin,” resident Cindi Williams said. “That amount of money (the penalty) means nothing to (Burtka.)”

“You buy for $31 million a property worth $16 million and sell for $12 million … nothing suspicious there,” one city official said sarcastically, requesting anonymity.

City officials were reportedly asked not to comment on the issue Thursday afternoon.

Residents are troubled by the aftermath.

“It’s a slap on the wrist,” resident Maureen Wilcox said. “Seriously?”

“When a municipal official like Burtka controls the activities of others who engage in fraud, we won’t hesitate to use every legal avenue available to us in order to hold those officials accountable,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit.

(Tereasa Nims can be reached at