Press Release Article


PORT AUTHORITY SETTLES SEC INVESTIGATION INTO MARCH 2011 BOARD DECISION TO FUND NEW JERSEY ROADWAY PROJECTS

Date: Jan 10, 2017
Press Release Number: 6-2017

No bondholder suffered any loss and no bond proceeds were ultimately allocated to fund the roadway projects

Agency has already made significant governance reforms since March 2011 to ensure there will be no recurrence of the "negligence" found by the SEC and views its $400,000 payment as modest compared to the cost of litigation


The Port Authority has settled with the SEC an investigation arising out of the Agency’s failure to disclose to bondholders the legal risk that the Port Authority’s March 2011 decision to fund $1.8 billion for roadway improvements at and around the Pulaski Skyway in New Jersey might have been beyond the Agency’s statutory authority. The March 2011 Board decision was made before current Port Authority senior leadership was at the Agency. This matter involved two questions: (1) did the Agency have sufficient statutory authority to expend those funds; and (2) was the legal authority found by the Law Department to exist, and the risks associated with that determination, properly conveyed to the Board and to the purchasers of its bonds?

With respect to the first question, the answer was, and is, yes. That is not in dispute and has since then been corroborated by independent legal opinions from two respected national law firms, retained by the Board, which confirmed that the Agency's enabling statutes supplied a “reasonable basis” for concluding that funding the referenced roadway projects "was and is within [the Port Authority's] authorized powers." In addition, in an unrelated civil case, the United States District Court for the Southern District of New York rejected out of hand the argument that the funding of these projects was not authorized by the Port Authority’s governing statutes.

With respect to the second question, notwithstanding that subsequent affirmation of its legal basis, the original opinion rendered by the Law Department in 2011 was believed to be "not free from doubt" and subject to certain risks. Neither the 2011 opinion nor the qualifying language was conveyed to the Board at the time, or to bond purchasers in subsequent prospectuses. The settlement with the SEC stipulates that the Agency acted "negligently" in having failed to disclose the qualifying language and risks to bond purchasers. There is no finding that the Port Authority acted willfully or even intentionally.

No bondholders suffered any loss as a result of this failure to disclose because the Port Authority did not ultimately use bond proceeds to fund the roadway projects.

Both before and after learning of the SEC investigation, the current leadership of the Port Authority has undertaken governance reforms that directly address the conduct at the core of the investigation. For example, the Board has eliminated the relatively summary “consent calendar” method of voting pursuant to which the above-referenced roadway projects were approved. The Port Authority now employs outside attorneys to serve as bond counsel and disclosure counsel in connection with all bond offerings, a function that had previously been discharged by the Port Authority Law Department.

More generally, during recent years, both before and after learning of the SEC Investigation, the Port Authority has redoubled its efforts to adhere to the highest standards of accountability, transparency, and ethical conduct. Robust new policies have been put in place to insure rigorous protections for whistleblowers; broad and vigorous public participation at Board meetings; transparency-minded compliance with freedom of information requirements; and wide public dissemination of Port Authority financial information. In addition, during recent years the Port Authority has established a strong recusal policy for addressing potential conflicts of interest between Commissioners’ private interests and public duties; instituted a “zero-tolerance” policy with respect to offering or accepting gifts; mandated public posting of the Board’s agenda well in advance of Board meetings; embarked on a nationwide search for a Chief Ethics and Compliance Officer; directed the General Counsel to review agency contracts for conformity with underlying Board resolutions; cooperated fully with outside investigations of the Port Authority, including by waiving certain evidentiary privileges; and instituted a “Voice of the Employee” system, that allows Port Authority employees to report to a third-party service any apparent conflict of interest or inappropriate conduct.

Against this backdrop of thorough-going governance reforms, after learning of the SEC investigation the Port Authority retained a leading law firm to represent it. The Port Authority cooperated closely with the SEC. More than 20,000 documents were provided to the SEC and the Port Authority waived certain of its evidentiary privileges at the request of the SEC. The law firm’s work confirmed that Port Authority attorneys had concluded in writing that the roadway projects were within the statutory authority of the Port Authority --- but that the risk that this conclusion might potentially have been erroneous was not conveyed to the Board before it approved the roadway projects or, subsequently, to bondholders.

In light of the above, the Board has now agreed to resolve the SEC investigation. The Port Authority’s settlement with the SEC will ensure that Port Authority governance is further improved. For example, pursuant to the settlement the Law Department will be required to certify that certain proposed Board actions are, indeed, legally authorized, and an independent monitor will assess the Port Authority’s policies and procedures with respect to disclosing legal and governance risks in connection with bond offerings. The Port Authority will also be required to pay $400,000.

The Board acted to settle the SEC investigation at its November 2016 Executive Session, pursuant to a Resolution that is now being made available on the Port Authority’s website. The Board’s November action is being announced today because the SEC has today announced the settlement.

CONTACT:
Port Authority of New York and New Jersey
212-435-7777

Founded in 1921, the Port Authority of New York and New Jersey builds, operates, and maintains many of the most important transportation and trade infrastructure assets in the country. The agency’s network of aviation, ground, rail, and seaport facilities is among the busiest in the country, supports more than 550,000 regional jobs, and generates more than $23 billion in annual wages and $80 billion in annual economic activity. The Port Authority also owns and manages the 16-acre World Trade Center site, where the 1,776-foot-tall One World Trade Center is now the tallest skyscraper in the Western Hemisphere. The Port Authority receives no tax revenue from either the State of New York or New Jersey or from the City of New York. The agency raises the necessary funds for the improvement, construction or acquisition of its facilities primarily on its own credit. For more information, please visit http://www.panynj.gov.


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