WASHINGTON — The Securities and Exchange Commission is moving forward with a sweeping but informal inquiry into the manner in which Miami presented its financial condition in offering documents for bonds issued in 2007.
In a letter sent Friday by two senior SEC staff attorneys to the city, the commission asked for Miami officials by Dec. 23 to voluntarily turn over documents from October 2006 through the present, as well as information on the transfer of money slated for capital projects to the city's general fund, according to market participants who have seen the letter.
In particular, the SEC is looking at two transfers of about $13 million each in 2007. The letter was signed by two senior counsel in the SEC's Miami office, Andre Zamorano and Rachel Paulose. Paulose previously was the U.S. attorney for Minnesota during 2006 and 2007.
In addition, the commission is asking for all e-mails from six financial employees of the city, as well as documents exchanged with dealer firms First Southwest Co., Merrill Lynch & Co., UBS, JPMorgan, and the accounting firm McCaldrey & Pullen LLP.
The commission is also asking for the same documents that were reviewed by Miami's independent auditor general, Victor Igwe, who released a critical audit of the city's finances on Nov. 17. The audit outlined the city's failure to comply with four of 13 certain "financial integrity principles" that Miami officials adopted in 2000 following a fiscal emergency in the 1990s that led to state oversight for several years.
Igwe's audit questioned the structural balance of the budget as well as interfund transfers — including the transfer of $26.3 million in two fiscal years from capital projects funds to the city's general fund — and expenditures by some city departments.
The SEC's informal investigation appears to focus on how those transfers were presented in bond documents, market participants said. Municipal issuers can be held legally liable under the federal securities laws for negligently misstating material facts or providing misleading disclosures, and can also be liable in a civil action by a third party for recklessly doing so.
Nearly a decade ago, the SEC pursued securities fraud charges against Miami, claiming that disclosure documents for three 1995 bond issues totaling $116.5 million as well as secondary market disclosures misled investors about the city's deteriorating financial condition. The case was tried in 2000 and resulted in an initial decision by an SEC administrative law judge in 2001, which was appealed by the city but upheld by the commission.
Separately, the SEC announced yesterday that it has named Eric Bustillo regional director in its Miami office. Bustillo joins the SEC from the U.S. attorney's office in the southern district of Florida where he has been an assistant U.S. attorney and chief of the economic and environmental crimes section since 2005.
He formally served in the SEC's Miami office from 1990 to 1995 as an enforcement staff lawyer and as a branch chief. He plans to assume his new position in mid-January, the SEC said.
"The SEC's Miami office is a critical ingredient in our national enforcement effort," said Robert Khuzami, director of the SEC's division of enforcement, in a statement. "Eric's great talent and experience, along with the expertise and professional excellence of the current enforcement management and staff, will combine to continue that office's record of smart and informed enforcement actions and investor protection."
As regional director, Bustillo replaces David Nelson, who left the commission this summer to join Boies, Schiller & Flexner in Fort Lauderdale. In the interim, the office was jointly led by associate directors Glenn Gordon and John Mattimore.
The Miami office oversees the SEC's enforcement and examination functions cover Florida, Mississippi, Louisiana, Puerto Rico, and the U.S. Virgin Islands.
