SEC charges Miami and ex budget director with fraud
The Securities and Exchange Commission (SEC) found that beginning in 2008, Miami and Michael Boudreaux made materially false and misleading statements and omissions about certain interfund transfers in three 2009 bond offerings totaling $153.5 million.
They similarly included false and misleading information in the city's fiscal year 2007 and 2008 Comprehensive Annual Financial Reports (CAFRs) that are distributed to broad segments of the investing public, including investors in previously issued city debt. Mr. Boudreaux orchestrated the transfers from the city's Capital Improvement Fund to its General Fund in order to mask increasing deficits in the General Fund, which is viewed by investors and bond rating agencies as a key indicator of financial health.
The SEC's action also charges Miami with violating an SEC cease-and-desist order that was entered against the city in 2003 based on similar misconduct. This is the first time the SEC has alleged further wrongdoing by a municipality subject to an existing SEC cease-and-desist order.
According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, Mr. Boudreaux initiated the city's transfer of approximately $37.5 million between the funds. Miami did not disclose to bondholders that the transferred funds included legally restricted dollars which, under city code, may not be commingled with any other funds or revenues of the city.
Miami also failed to disclose that the transferred funds were allocated to specific capital projects that still needed those funds as of the end of the fiscal year, or in some instances already had spent that money. The transfers enabled Miami to meet or come close to meeting its own requirements relating to the General Fund's reserve levels. In the wake of the transfers, the city's bond offerings were all rated favorably by credit rating agencies.
According to the SEC's complaint, Miami was forced to reverse most of the transfers following a report by its Office of Independent Auditor General (OIAG). The city then declared a state of fiscal urgency once it failed to meet statutorily mandated fund levels in its General Fund, and bond rating agencies consequently downgraded their ratings on the city's debt. ■