Mayor: SEC to charge city of Miami with misleading bond investors

The U.S. Securities and Exchange Commission on Friday charged the city of Miami and its former budget director with civil securities fraud for engaging in questionable budget transfers that misled bond investors.

The SEC?s enforcement action also charged the city with violating an existing cease-and-desist order entered in 2003 based on ?similar misconduct.?? The agency said it?s the first time the SEC has alleged further wrongdoing by a municipality already under an existing cease-and-desist order.

The charges, filed in federal court in Miami, allege that the city and former Budget Director Michael Boudreaux ?made materially false and misleading statements and omissions? about internal fund transfers leading up to three 2009 bond offerings totaling $153.5 million. They also are accused of including ?false and misleading? information in the city?s 2007 and 2008 financial statements distributed to bond investors.

The investigation, which began in 2009 after a Miami Herald report, revealed that Boudreaux transferred $37.5 million from the capital budget that pays for big-ticket construction items into the general fund to reduce gaping holes in the operating budget as the local economy soured. At the time, he justified the transfers by saying the projects were no longer necessary.

But the SEC found that the projects still needed those funds during that fiscal year, or that the money had already been spent. The transfers enabled Miami to meet its own requirements for general fund reserves. As a result, the city?s bond offerings were rated favorably by credit rating agencies, which view general fund balances as key indicators of financial health.

?Miami cannot continue play shell games with its finances,? Eric I. Bustillo, director of the SEC?s Miami regional office, said in a statement. ?Investors and the markets deserve complete transparency in assessing the city?s municipal bond offerings.?

The SEC?s complaint seeks to prohibit the city from violating securities laws and to impose financial penalties on Miami and Boudreaux. It also seeks a court order directing the city to comply with the agency?s 2003 cease-and-desist mandate.

?Today, we?re paying for the sins of the past,? Miami Mayor Tom?s Regalado said. ?Now the city is very careful in segregating accounts.?

Boudreaux?s attorney, Michael Pizzi, said his client is a ?scapegoat? for making a budget recommendation supported at the time by the city manager, mayor and commissioners.

?He was an employee who did his job and did absolutely nothing wrong,? Pizzi said. ?There?s not a scintilla of evidence of bad intent or fraud on his part.?

The charges are likely to play a part in Regalado?s reelection this fall. His main challenger, Commissioner Francis Suarez, said earlier Friday that the SEC?s action would not come as a surprise to commissioners who have repeatedly criticized the city?s budget procedures.

?It?s a practice that hasn?t really improved, in my opinion, throughout Regalado?s tenure,? Suarez said. ?One of the most unstable departments in the city has been the finance department.?

Source: http://www.miamiherald.com/2013/07/19/3509271/mayor-sec-to-charge-city-of-miami.html

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