SEC Wins Jury Verdicts Against City of Miami, Budget Director

The SEC prevailed at trial in an action against the City of Miami and its former budget director, Michael Boudreaux centered on three bond offerings. Specifically, the jury returned verdicts in favor of the Commission as to each defendant on charges of violating Securities Act Section 17(a) and Exchange Act Section 10(b) while rejecting defenenses of reliance on auditors as to each defendant. SEC v. City of Miami, Florida, Civil Action No. 1:13-cv-22600 (S.D. Fla. Verdict Sept. 14, 2016).

The action centered on three bond offerings in May, July and December 2009. In advance of those offerings the City distributed its Comprehensive Annual Financial Reports or CAFRAs, according to the complaint. That document contains a Management’s Discussion and analysis section and the audited financial statements of the City. The transmittal letter represented that the CAFRA was complete and reliable in all material aspects. The documents in part rely on the budget from the then budget director Michael Boudreaux.

On May 29, 2009 the City issued about $53 million in Limited Ad Valorem Tax Bonds. The bonds were not insured. They were, however, secured by certain pledged City ad valorem tax revenues. The Preliminary Official Statement for the bond offering contained excerpts of the City’s CAFR, including the MD&A section, and the audited financial statements. In July and December 2009 the City issued, respectively, $37 million and $65 million in similar bonds on the same basis using comparable documents. In each instance rating agencies gave the bonds favorable ratings which secured good terms for the City.

Despite the representations in the documents distributed by the City, a series of transfers had been made from its Capital Projects Fund to its general fund that were not reflected in those materials. The transfers were made to conceal deficits in the general fund. The City had established a goal of maintaining $100 million in reserves in its general fund. The funds transferred were supposed to be restricted. To effectuate the transfers Mr. Boudreaux falsely told the City Commission that the funds were unallocated, the SEC charged. He then concealed the transactions in the City’s internal records. Mr. Boudreaux also made misrepresentations to the rating agencies which helped secure the favorable ratings for the bond offerings, according to the complaint. The court has not set a date for a hearing on remedies.

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