South Miami Cheated on Bonds

WASHINGTON (CN) - South Miami will pay more $260,345 and defease parts of two bond offerings to settle an SEC complaint of defrauding investors about the bond issues' eligibility for tax exemptions.

South Miami borrowed $12 million in two bond offerings and claimed they qualified for special low, tax-exempt rates, but did not disclose that it jeopardized the tax-exempt status of the bonds by loaning proceeds from the first one to a private developer and restructuring a lease structure before the second offering, the SEC said.

South Miami, pop. 11,000, agreed to settle the charges and hire an independent consultant to oversee its bond offerings.

The SEC said in a statement announcing the settlement: "South Miami sought financing to develop a public parking garage. The project ultimately became a mixed-use retail and public parking structure to be developed by a for-profit developer. Under the initial lease agreement between the city and the developer, the city was responsible for all construction costs except the retail portion. The city retained full control over the operation and maintenance of the parking garage portion and all parking revenues. The developer's limited role was critical to the city receiving the benefits of tax-exempt financing. Under IRS regulations, the project could be financed on a tax-exempt basis only if its use by the for-profit developer was kept to a minimum."

South Miami also must defease, or annul, part of the bond offerings at a cost of $1.6 million, the SEC said.

The bonds were funded through the Florida Municipal Loan Council.

As is customary with the SEC, South Miami did not have to admit it did anything wrong, or even out of the ordinary.

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