The Miami Herald
BYLINE: CHARLES RABIN; crabin@MiamiHerald.com
Federal authorities have informed Miami they intend to file civil charges against the city for securities violations stemming from a $65 million bond sale in 2009 — likely bringing an end to a 28-month investigation.
The Securities and Exchange Commission has been looking into whether city leaders misled investors by failing to give accurate assessments of the city’s finances at the time. That investigation is unrelated to a new SEC probe into the sale of about $500 million in government bonds used to build the Miami Marlins’ new ballpark.
“We have information that they have concluded their investigation into bonds issued in 2009,” city attorney Julie Bru told The Miami Herald Tuesday. “We have reason to believe they may be bringing civil charges against the city.”
Bru said she has met with SEC lawyers and won the city time to negotiate a possible settlement in the pending case. Commission Chairman Francis Suarez said he will call an executive session some time next week to discuss terms.
Just what charges Miami likely will face is not clear. The SEC declined to comment and has not yet formally served the city with its findings. Ivan Harris, an outside attorney with Morgan, Lewis & Bockus hired by the city for the case, also refused comment.
Sources familiar with the investigation said that in addition to charging the city, the SEC could penalize two former Miami employees who were instrumental in the bond sale and overseeing city’s finances.
Suarez agreed, saying the city “anticipates individuals may get tagged.”
The SEC investigation, begun in 2009, stemmed from a series of Herald stories earlier in the year. The Herald reported city financial leaders had uncovered two pots of unspent capital fund money totaling $26.4 million that were placed back into the general fund to reduce a 2008 deficit. The transfers helped the city balance its books even as expenses rose precipitously with skyrocketing pension and salary costs.
The Herald stories also found that from 2003 to 2009, which were boom times, Miami had turned a healthy reserve fund upside down, using about $100 million from those reserves to balance its books.
The SEC investigation also followed a blistering audit by former Internal Auditor Victor Igwe, who said the city skirted financial integrity rules by using “inaccurate and misleading” budgetary practices while it scrambled to fill budget holes.
A December 2009 SEC letter announcing the investigation demanded Miami turn over thousands of pages of documents, including every email, written response, computer log or correspondence relating to more than $250 million worth of bond deals dating back to 2006. The deal now at issue was for improvements to city streets and sidewalks, and to refinance taxable pension bonds, Bru said.
The SEC also requested all internal communication between six top city officials, all of whom are now gone.
The SEC also took depositions from nearly every senior-level Miami employee who had anything to do with city budgets. Several of those employees are long gone, including Chief Financial Officer Larry Spring, Finance Director Diana Gomez, City Manager Pete Hernandez and Budget Director Michael Boudreaux, who was fired.
Boudreaux and Igwe have filed whistleblower complaints against Miami saying their jobs were eliminated as a result of the SEC investigation.
Defending itself has been an expensive proposition for Miami. By late last year the city had paid four law firms $1.4 million.
Miami Mayor Tomás Regalado said he’s glad the investigation is coming close to an end. “These are things from the past we need to reconcile with,” he said.
Even as the case nears an end, Miami continues to face SEC scrutiny. In December, the agency informed Miami-Dade County and Miami that it was looking into the sale of about $500 million in bonds used to build the Miami Marlins new ballpark.
City and county leaders have speculated that the SEC wants to know why a majority of elected officials backed the deal, which critics said was lopsided, and why the decision to build the stadium and pay off the debt with public funds was never put to referendum.
The last time Miami got in trouble with the SEC was in the late ’90s, for attempting to use bond money to cover a $68 million debt. A federal judge ruled that city leaders had defrauded bond buyers by failing to disclose the depth of the city’s financial problems. The city was given a “cease and desist” order forbidding it from repeating the same mistakes.
The SEC has toughened its enforcement in recent years. In San Diego, civil penalties against four top officials reached $80,000.
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