Judge Drastically Lowers SEC's Penalties Against Former Miami Official

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WASHINGTON – Former Miami budget director Michael Boudreaux will face a much lighter penalty for securities fraud than the Securities and Exchange Commission sought, after a federal court judge found on Monday that the commission overreached in its requests to have Boudreaux enjoined and fined $450,000.

Judge Cecelia Altonaga, who sits on the U.S. District Court for the Southern District of Florida in Miami, called the SEC's fine request "overreaching and punitive" in her order finding that Boudreaux will only have to pay a $15,000 fine and will not face an injunction against future securities law violations.

Miami already settled for $1 million after a jury verdict handed down in September found both the city and Boudreaux guilty of defrauding investors by not disclosing the city's true financial picture in connection with three bond issues in 2009. The $15,000 fine total is made up of three $5,000 tier-two fines, one for each of the three statutory violations for which the jury found Boudreaux guilty. Tier-two fines involve fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.

"While the court recognizes a penalty is important for punishment and deterrence, the past three years of litigation alone resulting in a plaintiff's verdict serve as significant punishment and deterrence for Boudreaux's conduct in light of the record," Altonaga wrote.

She added that monetary penalties "serve to punish and deter future wrongdoers, but they must also be just in light of the facts and circumstances.

"Here, a low penalty is appropriate to satisfy the need for punishment and deterrence," she wrote, adding that "future municipal employees will likely be very cautious when advising their employers on the transfer of funds between accounts."

The SEC declined to comment on the order.

Benedict Kuehne, one of Boudreaux's lawyers, said Boudreaux "is gratified and relieved Judge Altonaga saw fit to impose only the minimal money payment of $15,000.

"While not a complete vindication yet, Michael Boudreaux and his legal team … continue tirelessly to fight for fairness and again [demand] that the SEC put an end to its effort to hold him accountable for financial decisions of senior personnel and elected officials in a large, community-centered municipality," Kuehne added. "He always worked in good faith to serve his community's best interests to the best of his abilities."

Boudreaux is planning to study the order and determine his next steps, according to Kuehne.

The former budget director had argued that the $450,000 penalty was unfair based on the facts of the case as well as his status as a financially ruined man after fighting the fraud charges. Altonaga found that Boudreaux's financial condition, which included $5,218 in monthly income, $37,500 in debt, and $1,145 in monthly expenses, warranted a significant reduction of the SEC's penalty.

She also noted that unlike in other cases where guilty parties received large profits as a result of the fraud, "Boudreaux did not make a single penny from the securities violations."

Additionally, Boudreaux's lack of a history of securities law violations and the "strong emotional toll on Boudreaux that was evident throughout the trial" contributed to the finding that such a large penalty would be inequitable, according to Altonaga.

The judge said that she denied the SEC's request for a permanent injunction to prevent Boudreaux from committing future securities law violations because the SEC failed to establish a reasonable likelihood of future violations without the injunction. Such proof is one of two necessary hurdles Altonaga said the SEC would have had to clear to get such an injunction. The other required the SEC to establish a clear case that Boudreaux violated securities laws in the past, something Altonaga said the commission undoubtedly did.

The decision was based on six factors that are meant to determine the likelihood of future violations. The factors include the: egregiousness of defendant's actions; isolated or recurrent nature of the infraction; degree of scienter involved; sincerity of defendant's assurances against future violations; defendant's recognition of the wrongful nature of his conduct; and likelihood of defendant's occupation will present opportunities for future violations.

Boudreaux had argued that there was no likelihood that he would violate securities laws in the future in part because of his inability to work on any municipal budget or in any finance capacity since being accused of securities violations.

"Indeed, the evidence shows Boudreaux is unlikely to ever work at a municipality in a finance capacity, let alone work with securities or bonds," Altonaga wrote.

The SEC had argued against that point by noting during the trial that Boudreaux's resume said he is seeking a job in municipal finance.

Altonaga also concluded that Boudreaux's conduct was not egregious, adding that the "mere fact Boudreaux violated securities laws does not automatically make his behavior 'outstandingly bad' or 'shocking."

The evidence also points to the fact that Boudreaux's violations were an isolated occurrence and that his present occupation, a business manager for a nonprofit religious organization in New Orleans, will not present him with opportunities for future violations. She added that the extensive coverage of the trial in various publications means Boudreaux's name has appeared throughout the country and that his career and reputation have been drastically affected.

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 in its fiscal years 2007 and 2008. The SEC said the misleading transfers were also meant to get more favorable bond ratings for offerings that were obtained in May, July, and December 2009.

The city disclosed the interfund transfers in each of their CAFRs and official statements but, according to the SEC, said the transfers contained money that was not expended and was being 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.

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