Long before federal regulators would accuse him of fraud for running a Ponzi-like scheme, Victor Farias decided to raise some cash in the municipal bond market. Farias couldn’t tap the market without help. His startup jet-engine-leasing business based in the San Antonio, Texas suburbs wasn’t exactly the kind of venture normally financed in the normally safe world of state and local government debt. But there was an agency that could do it for him: the Public Finance Authority of Madison, Wis. (PFA), Bloomberg News reported. The PFA was set up a decade ago with the sole purpose of renting out its power to issue municipal debt to businesses all over the country — from real-estate developers and colleges to nursing homes. It was June 2015 when Farias’s business moved to borrow through the PFA, submitting a five-page application that mostly provided contact information. The PFA didn’t review Integrity Aviation’s financial statements, revenue projections or demand a feasibility study, according to a bond offering statement. Farias, a former bond salesman, had almost zero experience in the aviation business, bond offering documents would later show. A month later, the PFA approved his proposal, and his business issued about $11 million of taxable debt, broken into $5,000 lots, small enough for mom-and-pop investors to buy them. Today, Integrity Aviation is in shambles. Bondholders have accused Farias of siphoning about $275,000, and a company that leased five of its engines filed for bankruptcy. And the muni bonds are trading for just 10.5 cents on the dollar in secondary markets, a price that indicates traders believe Integrity won’t be able to repay the debt when due next year.
