BRADENTON, Fla. — The Securities and Exchange Commission is seeking a record $450,000 civil penalty against former Miami budget director Michael Boudreaux, an amount 9 times larger than the highest previous penalty sought against a municipal official.
The SEC, in an Oct. 28 court filing, said it is also seeking a permanent injunction that would bar Boudreaux from violating anti-fraud provisions of federal securities laws again.
The penalties stem from the Sept. 15 trial in which a federal jury found the city of Miami and Boudreaux guilty of defrauding investors by not disclosing the city's true financial picture in connection with three bond issues in 2009.
Boudreaux was found guilty on three of four counts involving violations of the Securities Act and Rule 10 of the Exchange act, and was exonerated on one count of fraud in Violation of Section 17(a)(1) of the Securities Act.
"The SEC's position is outrageous, unacceptable and plainly discriminatory," Boudreaux's attorney, Benedict Kuehne, said Friday. The SEC "has chosen to punish Mr. Boudreaux notwithstanding that he was found not liable for participating in the overall security fraud scheme alleged."
Kuehne, who will file a response to the SEC's requested penalties, also said that Miami's settlement should have also resolved the matter against his client.
Miami agreed to pay a record $1 million civil penalty in a settlement that was reached after the trial.
The agreement, which also included a permanent injunction, was approved by Judge Cecelia Altonaga on Oct. 26.
The record amount being sought against Boudreaux is significantly higher than any other civil penalty imposed on a municipal official, said Robert Doty, president of the municipal securities litigation consulting firm AGFS.
"It shows that the SEC's Public Finance Abuse Unit is serious about getting the attention of municipal officials and it delivers the message that there can be substantial penalties," Doty said. "I don't think it's a surprise that the commission asked for a higher penalty than in previous actions."
"The previous actions were settled," he said. "Here, Boudreaux put the commission to the trouble of going to court."
Thomas Birmingham, the general manager of the Fresno, Calif.-based Westlands Water District, is believed to have paid the highest individual penalty to date - $50,000 to settle SEC charges, without admitting or denying guilt, that the water district misled investors about its financial condition when it issued $77 million of bonds in 2012.
The egregiousness of Boudreaux's actions, the risk of substantial losses to bondholders and the "complete absence of both the sincerity of Boudreaux's assurances against future violations and recognition of the wrongful nature of his conduct dictate that a penalty must be imposed," the SEC's brief said.
In addressing whether the court should reduce the penalty, the SEC said Boudreaux has never presented any evidence that he lacks the ability to pay a penalty and he "remains gainfully employed, earning, per his counsel, about the same amount he did when he was budget director - $150,000 to $160,000 per year in salary."
Kuehne said the amount of money being sought by the SEC is "irrationally different from the many other cases the SEC has brought against individuals, particularly individuals who had no financial gain whatsoever as is reflected completely in the case with Mr. Boudreaux."
Other cases, however, typically involved a single bond issue.
In Miami's case, the city hid its declining financial position by using inter-fund transfers to cover up a general fund deficit, information that was not disclosed to rating agencies or in three separate bond issues in 2009 totaling $153.5 million.
Miami is the first municipality to ever violate an existing SEC cease-and-desist order, which occurred in 2003 and stemmed from the city's failure to disclose its deteriorating financial condition in three bond offerings in 1995.
The 2003 cease-and-desist order, which Miami ultimately accepted after an appeal, required the city not to violate securities laws in the future.
