Miami to Meet Oct. 13 to Review SEC Settlement

alfonso-daniel-miami-city-manager.jpg

BRADENTON, Fla. – Miami officials will hold a special meeting to consider a settlement with the Securities and Exchange Commission in light of a verdict finding the city guilty of securities fraud.

City commissioners decided Thursday that it was necessary to hold a separate meeting with attorneys before determining whether to settle or file an appeal of the verdict.

"On Oct. 13 the City Attorney's office will have a private attorney/client meeting with the commissioners, closed to the public, for the purposes of discussing the SEC litigation and how to proceed going forward," city communications director, Diana Gonzalez, said in an email.

Late Thursday, the SEC filed a notice with the court stating that it had reached a tentative settlement with Miami, and that the City Commission intended to consider it on Oct. 13.

U.S. District Judge Cecilia Altonaga extended the time for the SEC to file settlements or motions requesting relief to Oct. 28.

City Manager Daniel Alfonso said in an interview Wednesday that the city is working to negotiate a settlement proposed by the SEC, including the amount of a penalty.

"The SEC has already presented us with an offer," he said, declining to be more specific.

If commissioners settle the expense it will come from the city's projected $137 million fiscal 2016 fund balance, he said.

Commissioners first briefly discussed the settlement when they adopted a nearly $1 billion budget for fiscal 2017 on Tuesday.

Commissioner Frank Carollo asked how the payment for a penalty related to the SEC verdict would be budgeted, and Alfonso said it would be considered a liability to be paid from the current spending plan.

"We're working on preliminary language on a settlement," Alfonso said.

After a 12-day trial, a jury on Sept. 14 deliberated about four hours before finding that Miami and its former budget director, Michael Boudreaux, defrauded investors by not disclosing the city's true financial picture in connection with three bond offerings in 2009.

The SEC contended that Miami and Boudreaux used interfund transfers to mask a deficit, shield the information from investors, and obtain more favorable bond ratings for $150 million in debt that was sold in 2009, in violation of securities laws.

Miami is the first municipality to ever violate an existing SEC cease-and-desist order.

In 1999, the SEC instituted administrative proceedings charging Miami, its former city manager, Cesar Odio, and former finance director, Manohar Surana, with securities violations.

The violations stemmed from disclosures that failed to provide information about the city's deteriorating financial condition in connection with $22.5 million of general obligation bonds, $22 million of revenue bonds, and $72 million of pension bonds, which were issued at various times in 1995.

The debt was sold amid a severe financial crisis that led then Gov. Lawton Chiles to appoint an Emergency Financial Oversight Board in 1996 to overcome a $68 million deficit.

An SEC administrative law judge concluded in 2001 that Miami "falsely certified" in bond documents and secondary market disclosures that there had been no material adverse change in its financial condition.

Miami appealed the judge's ruling, but it was upheld by the SEC in 2003, which ordered the city to cease-and-desist from committing future violations of the antifraud provisions of the securities laws.

Odio and Surana both entered settlements with the SEC agreeing not to violate securities laws.

In 2001, Dain Rauscher Inc., which underwrote the city's 1995 pension bond issue when the firm was known as Rauscher Pierce Refsnes Inc., paid $200,000 to settle SEC charges that it failed to ensure that Miami's financial condition was fully disclosed in the official statement.

For reprint and licensing requests for this article, click here.
Bankruptcy Enforcement Florida
MORE FROM BOND BUYER