University Beach Improvement District Board Manager Has Long History Of Regulatory Violations

NORTHPORT, AL — The district manager of the University Beach Improvement District has a long history of violations and sanctions, according to records obtained by Tuscaloosa Patch from the Financial Industry Regulatory Authority (FINRA).

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Patch reported on Monday when public finance consultant and district manager Pfilip Hunt of Boca Raton, Florida-based Wrathell Hunt & Associates had his initial introduction to the community as he presided over the first meeting of the University Beach Improvement District Board of Directors.

The three-person board, consisting of Texas developers Kent Donahue and John Hughes, along with investor and Board Member Katie Le of San Marcos, California, is tasked with financing and maintaining the public infrastructure related to the proposed resort and lagoon.

Le was not in attendance for Monday's meeting.

Developers claim the 77-acre mixed-use development will bring $350 million in outside investment after entering a partnership agreement with the City of Northport, which has committed over $20 million toward the project for infrastructure improvements.

Monday's meeting did little to answer lingering questions in the community, with Donahue declining to allow public comments after the University Beach Improvement District Board voted on budgets for the current and next fiscal years, along with a slew of other seemingly important measures.

Hunt even took a thinly veiled jab at the concerned members of the public in attendance at the beginning of Monday's meeting, telling them that they may be "a little disappointed" with the items on the agenda.

And while Hunt provided thick agenda packets with all of the details of each agenda item to members of the board, the public and City Council had not been given access as of the publication of this story.

Tuscaloosa Patch reached out to Hunt via email following the meeting, who said he would "compile the agenda package ... will be happy to send that to you soon."

Despite the acknowledgement, it's worth pointing out that Hunt told those gathered that it was legal for him to provide copies of the agenda packet to the board members before the meeting.

Patch has yet to receive a copy of the agenda packet from Monday's meeting.

A Long, Sordid History

At any rate, Hunt has a history of serious violations documented by FINRA over the last several decades, resulting in fines, sanctions and, in at least one instance, the suspension of his license.

His most-recent documented violation came a little more than a decade ago, when Hunt was serving as president and chief compliance officer of his firm, Gardnyr Michael Capital, Inc. (GMCI).

FINRA reports it expelled Gardnyr Michael Capital, Inc. from the securities industry in July 2014.

Gardnyr Michael Capital, Inc. operated as a municipal securities firm from 1992 until 2013, with its last listed location being Mobile after first being incorporated in Florida.

According to FINRA, Hunt was directly responsible for the firm's failure to adopt, maintain or enforce written supervisory procedures regarding ratings trips — namely, when it was found that there were no procedures to properly reimburse ratings trip expenses.

This is a relevant piece of information because the University Beach Improvement District that Hunt presides over will be involved in the issuance of revenue bonds for the project and most likely will have to make such trips in the future.

"Hunt was responsible for supervising the firm's vice president and other registered representatives who arranged for and/or participated in ratings trips and sought and obtained reimbursement of ratings trip expenses from bond offerings," the report reads. "Hunt limited his activities to reviewing trip itineraries before or after the ratings trip was undertaken. No one supervised a trip arranged by Hunt or efforts undertaken to seek and obtain reimbursement of the trip expenses."

According to a filing with the Securities & Exchange Commission obtained by Patch, offerings provided by the firm to issuers included structuring bond offerings and providing a sales team to market them. At times, the firm would help municipalities obtain favorable insurance and bond ratings, with GMCI organizing trips to New York City for municipal officials to meet with representatives of bond rating and bond insurance agencies.

The 2013 complaint against Hunt focused on three such trips taking place in December 2007, March 2008 and December 2009.

GMCI was a co-underwriter for the municipal bond issue for the December 2007 trip and was the sole underwriter for the other two offerings.

Hunt's firm then organized the trips, paid for transportation, meals, lodging, and in some instances entertainment, before seeking and receiving thousands in reimbursements from the municipalities.

Hunt was responsible for organizing the first trip, while a former investment banker for the firm organized the other two.

Reimbursements for this initial trip eventually totaled $7,971.41.

In terms of the one trip that Hunt organized, this involved Mobile County in 2007 competing with other jurisdictions to be the site of a major steel production plant that expected to bring between 3,000 and 4,000 jobs to the area.

This project required a commitment of $70 million by Mobile County, making it “the single biggest bond deal that Mobile County had ever done."

To make this possible, Mobile County planned to issue municipal bonds to raise funds to acquire and improve land for the plant and levy a tax to pay principal and interest on the bonds, with Hunt's firm serving as the underwriter.

As a way to seek a favorable rating from credit rating agencies and bond insurance firms, Hunt organized a trip to New York City on behalf of the county for officials to meet with analysts and a bond insurer.

While the meetings were scheduled for Monday, Dec. 10, 2007, a filing with FINRA obtained by Patch said four of the seven Mobile County officials making up the county delegation chose to travel to New York City a day before the others and well ahead of the meeting scheduled for that Monday.

The officials were joined by Hunt, his wife and an officer from GMCI's co-underwriter.

The filing says the reasons some members of the delegation went a day early had nothing to do with the bond issue — a notion corroborated when the involved parties testified under oath.

Providing various reasons, the officials informed Hunt they would be leaving for the trip earlier than scheduled. Hunt then told the officials he would meet them in New York City the Saturday before the meetings scheduled for that Monday.

The filing says Hunt and his wife spent Saturday and Sunday shopping. The other Mobile County officials arrived ahead of that Monday's meeting were also "on their own" for most of the weekend.

The Saturday ahead of the meeting with bond agencies and other entities, two Mobile County officials racked up hefty bills for lunch and all four officials incurred expenses for dinner and lodging at a Renaissance Hotel — $2,707.36.

The following day, three other Mobile County officials arrived in New York City.

The entire delegation then met for dinner and what was described as a “preparation session,” before the group attended a performance of The Blue Man Group at the Astor Place Theatre that Hunt paid for with his company credit card.

After an off-day in the Big Apple on Sunday, the delegation and Hunt then met with two ratings agencies and a bond insurance agency on Monday and returned to Alabama Tuesday morning, with GMCI receiving a total reimbursement of $16,707.38.

The FINRA filing says Hunt initially sought reimbursements for meals, including liquor, for
himself, his wife, and the representative of the co-underwriter who also went to New York.

However, Mobile County Attorney Jay Ross directed Hunt to remove these costs from the request.

A hearing conducted on Dec. 31, 2013 determined Hunt willfully violated Municipal Securities Rulemaking Board (MSRB) regulations by failing to adopt, maintain, or enforce written supervisory procedures for bond rating trips and failing to supervise bond rating trips.

He was fined $10,000 for MSRB rule violations and suspended from association with any FINRA member in any principal capacity for three business days.

Prior to this, Hunt was also fined $7,500 in 2011 and was censured after violating MSRB rules for permitting a representative to function as a municipal securities principal while he was not registered or qualified to act in such a capacity.

FINRA reports that Hunt neither admitted to nor denied the allegations and paid the fine in full immediately after the decision was handed down.

The National Association of Securities Dealers, Inc. also initiated an investigation of Hunt in 1996, which resulted in him being censured and fined $1,000 for filing a Form G-37/G-38 approximately 10 days late.

Additionally, Hunt was involved with Florida-based Southeastern Capital Group, Inc., which was expelled from the securities industry by FINRA in April 1991. The circumstances behind this regulatory incident are not readily available on the FINRA website.

The most recent documentation available through FINRA shows that Hunt was involved from 2013 to 2018 with Mobile-based Harbor Financial Services, LLC.

Other municipalities have also accused Hunt of shady business practices, including in 2012 when a complaint filed with FINRA's regulatory arm effectively slayed a proposal to hire Hunt's firm to refinance a bond issued by the City of Daphne.

AL.com reported in February 2012 that Daphne City Councilman Gus Palumbo said the accusations in the complaint against Hunt: “scares the hell out of me.”

Allegations were reported that Gardnyr Michael Capital, Inc. was charging excessive markups ranging from 5.36% to 22.9% on municipal bonds from October 2008 to July 2009.

The next potentially big development for University Beach could come on Tuesday, June 10, when the Northport Planning & Zoning Commission will consider a preliminary plat approval of 61.2 acres for the project.

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