BRADENTON, Fla. — The Securities and Exchange Commission will be asked by its staff to allow federal civil charges to be filed against Miami for failing to disclose serious budget problems in official documents associated with its bond offerings.
The Miami regional SEC office sent the city a so-called Wells Notice on Monday stating that charges would be recommended for alleged securities violations. The city can choose to try and refute the charges, according to a letter signed by Andre Zamorano, senior counsel in the Miami office.
The city said in a statement that it “respectfully” disagreed with the SEC’s position, and intends to present information to the commission “demonstrating that such charges are not warranted.”
The charges are the result of an SEC probe that began in late 2009 into Miami’s budget and its deficit, internal audits and bond issues.
It is believed to be the first time an issuer has been involved in two SEC enforcement actions.
Miami in 2003 signed a cease and desist order with the SEC promising not to commit any future violation of the antifraud provisions of the federal securities laws.
“I’m not aware of any other municipal issuer that has been the subject of a second SEC enforcement action, and that may explain why the staff proposed going directly to federal court as opposed to proceeding with an administrative cease and desist action,” said Mitchell Herr, a partner with Holland & Knight LLP.
Herr was the lead SEC attorney who handled the first enforcement case against Miami, which began as an administrative proceeding in 1999. In that case, the SEC said that the city violated antifraud provisions by omitting material information about its financial status in reports and bond documents.
City Commission chairman Francis Suarez said the current investigation had been under way for some time.
“Optimistically, we had hoped the investigation would conclude with the finding that nothing improper had been done,” Suarez said. “Clearly, by virtue of the Wells Notice, that’s not how the SEC feels.”
Suarez said he, and others on the commission, were not in office when financial problems arose. Those problems led to allegations that capital funds were used for operations to disguise financial difficulties.
“Our position as a government is that we feel the transfers were not inappropriate and that they were accurately reflected on our financial statements,” he said, adding the current board has been proactive and transferred the funds back as a gesture of good faith.
The city has spent more than $1 million on legal expenses. Morgan, Lewis & Bockius is representing Miami in the matter.
“It’s not something that the city of Miami is proud of being pursued in two separate decades on something that the SEC is investigating,” Suarez said. “I think it is important to note that our posture, as a new commission, is to be extremely fiscally conservative.”
The commission has balanced the budget, replenished the reserve fund balance and “has not had to declare bankruptcy, unlike other cities across the country,” he said.
The SEC is also investigating the city and Miami-Dade County for their roles in building the more than $600 million bond-financed stadium for Major League Baseball’s Miami Marlins. The retractable-roof facility with 37,000 seats opened earlier this year near downtown Miami.
The SEC in December demanded documents, videos and audio recordings relating to the financings and to dealings with MLB and the Marlins, including the ball club’s ability to contribute to the stadium financing. The Marlins contributed $120 million to the project.
“It’s certainly not good that there is another pending investigation for transactions that transpired before this commission was elected,” Suarez said. “We’ve had to deal with a lot of adversity in terms of the SEC and the economic environment … these last few years.”