WHEELING – The Ohio County Board of Education is suing the statewide law firm Bowles Rice over the 1997 sale of almost $15 million in school bonds.
The Board filed a lawsuit Oct. 29 in Ohio County Circuit Court against Bowles Rice and Wells Fargo, seeking at least $330,796.43. The suit charges both Bowles Rice and Wells Fargo with breach of contract.
“In the course of preparations for the new bond issuance in the fall of 2008, the Board learned for the first time on Oct. 30, 2011, that the defendants had structured the 1997 bonds in such a manner that the Internal Revenue Service would be likely to find the 1997 bonds to be taxable arbitrage bonds,” the complaint says.
“Because the 1997 bonds had been issued and sold to investors as tax-exempt bonds, the Board faced substantial liability and penalties from the (IRS) in the event the IRS were to find the bonds to be taxable arbitrage bonds.”
In 1997, the Board contracted with Wheat, First Securities, Inc., to serve as bond underwriter and original purchaser for the issuance of $14,690,000 in school bonds, the complaint says.
Through mergers, Wheat First eventually became Wells Fargo.
Bowles Rice was hired to serve as bond counsel for the transaction.
The agreement was to be structured in a way that left the sale excludable from the gross income of the owners for federal income tax purposes in order to advance a refund on the Board’s 1993 sale of school bonds.
The purchasers of the 1997 bonds were told that all requirements of federal tax laws were met, and the bonds would be excludable from gross income.
Eleven years later, the Board says it found out that wasn’t the case.
In 2009, the Board submitted a request for a voluntary closing agreement to the IRS, which responded that the Board’s total potential liability exceeded $1.1 million.
A settlement was reached wherein the Board agreed to pay the IRS $330,796.43. The Board blames Bowles Rice and Wells Fargo and demands judgment against them be entered, jointly and severally.
Patrick S. Casey and D. Kevin Coleman of Casey & Chapman in Wheeling are representing the Board.
From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.
