[ by Howard Haykin ] Prospects of a "David & Goliath" Courtroom Battle. As a little-publicized SEC investigation digs deeper into certain financial practices of one small, cash-strapped California city, an attorney addresses its City Council, warning members that they faced "significant exposure to litigation." The desert city of Victorville, CA, now braces for the shock of possible litigation over allegations that it improperly shifted funds among different city-controlled entities.  And with financial woes raging across this largest state in the union, what could possibly stand in the way of an SEC "Regulatory Sweep" throughout the rest of California? According to City attorney Andre de Bortnowsky, who denies that Victorville has violated any laws, "it almost appears as if the SEC is on a fishing expedition." The exact focus of the SEC investigation is not known, and the SEC declined to comment. But, in late June, a civil grand jury report alleged that Victorville may have violated state laws by transferring property taxes dedicated to its sanitation department to its general fund budget. Civil grand juries are investigative bodies that are not empowered to bring charges. Harvey M. Rose Associates, a San Francisco-based public sector management consulting firm, said in a report to the civil grand jury that Victorville had mismanaged projects, made poor decisions on contracts and loaned $38 million to its municipal utility and its local airport.  The report said repayment of those loans was "highly questionable."  The report puts the city's assets at $32 million, against liabilities of $108 million, that would render the city insolvent. Bortnowsky said the city "takes issue with respect to many of the statements contained in a Grand Jury report - especially those pertaining to purported violations of state and local laws and resolutions."  He added that a full response to the grand jury allegations would be "forthcoming shortly." Details About the Prospective Respondent. Victorville – population about 115,000 – had outstanding bond bebt of $407 million, as of 6/30/11.  The city's auditors issued a "going concern" opinion back in February because of "substantial doubt about the city's ability to continue as going concern" due to "recurring losses" in its general fund and lack of liquidity in funds for its utility and the airport.  The city council in late June adopted a $47 million budget for its general fund that included a $75,000 surplus. Three other California cities have filed or said they would file for bankruptcy since 6/28/12;  on that date, Stockton filed for Chapter 9 protection to restructure more than $700 million in debt.  On 7/2/12 the city of Mammoth Lakes filed to shield itself from a $43 million court judgment.  On 7/18/12, the San Bernardino city council voted to seek bankruptcy protection.  In both Stockton and San Bernardino, poor financial controls and shuffling of money among different city entities appear to have contributed to their respective financial crises. For further details, go to:   [Reuters, 7/26/12].