SEC Accuses Miami|of Bond Offering Fraud

     MIAMI (CN) – The SEC accused Miami and its former budget director Michael Boudreaux of bond offering fraud, in Federal Court.
     “In March 2003, the Commission instituted a cease-and-desist order against the City for violations of the anti-fraud provisions of the federal securities laws in connection with bonds the City issued in 1995,” the complaint states. “The City has gone on to violate these same provisions again – this time in connection with three bonds the City issued in 2009.
     “The City raised approximately $153.5 million from the investing public through bond offerings in May, July, and December 2009. In connection with these offerings, the City made numerous material misrepresentations and omissions to investors in the bond offering documents and the City’s Comprehensive Annual Financial Reports (‘CAFRs’) concerning certain inter-fund transfers from its Capital Projects Funds to its General Fund, including transfers of restricted fees.
     “Beginning no later than 2007 until 2009, the City engaged in a series of transfers
     from its Capital Projects Funds to its General Fund to mask the General Fund’s deficits, transferred restricted funds into the General Fund, and falsely inflated the General Fund balance to achieve the City’s goal of maintaining $100 million in reserves in its General Fund, and ultimately obtained more favorable ratings on its bond offerings. To obtain the City Commission’s approval of these inter-fund transfers, Boudreaux made misrepresentations to the City Commission about the transfers, which falsely represented that the project funds were unallocated, and concealed the transfers in the City’s internal records.
     “The City made numerous material misrepresentations and omissions to the investing public in its bond offering documents and 2007 and 2008 CAFRs about the inter-fund transfers. For example, the City did not disclose the full amount or effect of the transfers to the General Fund’s budget and its fund balance. Further, the City represented the project funds transferred in 2007 and 2008 were ‘unexpended’ or ‘unused,’ when in reality the funds were allocated to specific capital projects that still needed the money or had already spent it. The City also failed to disclose it had not adjusted its Capital Projects Funds budget to reflect the transfers to the General Fund.
     “Additionally, to ensure rating agencies gave the City’s 2009 bond offerings favorable ratings, in April 2009 the City, through Boudreaux, made material misrepresentations and omissions to the agencies concerning the fiscal year 2007 and 2008 transfers and the City’s projected operating deficit for its fiscal year 2009 General Fund.
     “During the same time the Defendants were making material misrepresentations and omissions, the City obtained favorable ratings from the rating agencies on the more than $150 million the City raised from the investing public. Notably, these favorable ratings allowed the City to obtain the more than $150 million on more favorable terms than if they had less favorable ratings. Ultimately, the true nature of the transfers was disclosed, many of the transfers were reversed, and the City’s ratings were downgraded.
     “In addition to the above misrepresentations and omissions, the City, through Boudreaux, engaged in other fraudulent and deceptive conduct in violation of the federal securities laws, including, but not limited to, misrepresenting the interfund transfers to the City Commission that approved the transfers and by taking affirmative steps to obscure or conceal the transfers in the City’s internal records.”
     The SEC seeks an injunction and civil penalties.

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