Former Miami Budget Official Pushes for New Trial Citing Prejudice

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WASHINGTON – Former Miami budget director Michael Boudreaux is asking a federal judge to vacate a verdict and judgment that he defrauded investors over Miami's finances, claiming several issues in the Securities and Exchange Commission case unfairly prejudiced his trial.

Boudreaux, through his lawyer Benedict Kuehne, also asked for a new trial in a motion filed in the U.S. District Court for the Southern District of Florida in Miami late Tuesday. Judge Cecelia Altonaga, who presided over the trial, will review the motion. Boudreaux was found guilty of securities fraud in a Sept. 14 jury verdict and Altonaga imposed a $15,000 penalty against him.

Kuehne suggests a prior cease-and-desist order against the city of Miami is the most important legal issue that prejudiced the trial. Miami, which settled for $1 million in the case involving Boudreaux, had been under a cease-and-desist order stemming from a 2003 fraud case at the time the city and Boudreaux were charged with securities fraud. Boudreaux did not start working for Miami until ten years after the 2003 fraud case and was neither a repeat offender nor could be shown to have any knowledge of the prior case, according to Kuehne.

"Key to the entire case against Michael Boudreaux was the SEC's repeatedly inaccurate and unfair emphasis that the city of Miami and Boudreaux by extension were 'repeat' violators who continued to defy the anti-fraud provisions of the securities laws, and thereby jeopardized the safety and soundness of the city's municipal finances," Kuehne wrote. "Mr. Boudreaux's mere presence as a defendant in a case involving a 'repeat offender,' [the] city of Miami, caused unfair and irreparable prejudice that so infected the jury's assessment of the case as to render a fair trial impossible."

Kuehne also argued that audit reports from Miami's independent auditor Victor Igwe were "irreparably prejudicial and inadmissible hearsay" because they were after-the-fact determinations of potential internal violations that were his own opinions and were not based on securities law requirements or public disclosures appropriate for municipal bonds.

He additionally argued that the jury instructions given at trial inaccurately told jurors that reliance on professional advice was not a complete defense but only a factor for consideration in determining liability. Kuehne, drawing on a 2016 case in the federal circuit court that covers Florida, said the reliance on professional advice is allowable as a complete defense.

The SEC filed its complaint against Miami and Boudreaux in 2013 alleging that, starting in 2008, they misled investors about interfund transfers that were designed to cover up a growing general fund deficit during its fiscal years 2007 and 2008. The SEC said the misleading transfers were also meant to get more favorable bond ratings for offerings in May, July, and December 2009.

The alleged omissions and misrepresentations were made in: offering documents for the three bond transactions in 2009 that totaled $153.5 million; presentations to bond rating agencies; and the city's comprehensive annual financial reports (CAFRs) for fiscal years 2007 and 2008, according to the SEC.

The city disclosed the interfund transfers in each of its CAFRs and official statements but, according to the SEC, said the transfers contained money that was not expended and was returned to the general fund. In reality, that money had already been pledged to several ongoing capital projects and some of it was restricted by city law for designated purposes and not the general fund, the SEC said. Thus, the funds that were transferred should not have been considered unallocated, the commission said.

Kuehne disputed several of those allegations in the motion filed on Tuesday. He argued that the SEC did not present "a unified assignment of blame" for the fact that the capital projects continued spending despite the interfund transfers. Some witnesses blamed Boudreaux while others blamed members of the city's finance department. Kuehne said the SEC never established that Boudreaux's "good faith recommendations" to replenish the general fund were unlawful or unauthorized masking of Miami's financial crisis.

It is undisputed that Boudreaux did not draft the city's CAFRs, Kuehne said, so the SEC instead argued that he falsely represented that the transferred funds were unused by or unallocated to any project. That argument fails because the language Boudreaux included in his memo making the recommendations said the money to be transferred was only unused as of the close of the prior fiscal year. He did not say that the money was no longer needed, according to Kuehne.

Boudreaux also should not have been found guilty of negligence because he never drafted disclosure language and was not responsible for financial disclosures to the public, Kuehne said. It was the finance department's duty to independently review and properly implement the transfers Boudreaux recommended, he added.

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