What the Judge Ruled in the SEC's Case Against Miami and Boudreaux

WASHINGTON – The federal judge presiding over a Securities and Exchange Commission case charging Miami and its former budget director Michael Boudreaux with securities fraud concluded in a July 5 order that the bulk of the case could not be decided before trial.

Judge Cecilia Altonaga, who sits in the District Court for the Southern District of Florida in Miami, only granted summary judgment on one issue: that Miami and Boudreaux engaged in interstate commerce. The SEC needed a favorable ruling on this issue to succeed with its federal fraud charges.

Miami and Boudreaux conceded they engaged in interstate commerce in a prior filing, but said they were only doing so for purposes of summary judgment, not for a trial. Altonaga said in the order she found their effort to apply their concession only to summary judgment "unavailing."

Summary judgment is granted when an issue can be decided before trial.

Altonaga said in her order that, excluding the interstate commerce fact, "a review of the parties' briefing, statements of material facts, and other submissions plainly shows the record is full of disputed issues of material fact."

The case, filed in 2013, will now move on to filings related to whether certain testimony should be included in the trial, which is scheduled to begin during a two-week period after Aug. 22.

The SEC alleges that Miami and Boudreaux misled investors by failing to disclose inter-fund transfers that masked the deterioration of the city's general fund for fiscal years ending on Sept. 30 of 2007 and 2008.

The alleged omissions and misrepresentations were made in: bond offering documents for three offerings 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 those transfers in each of their CAFRs and official statements but falsely stated that the money was not expended and was being returned to the general fund, according to the SEC. In actuality, that money had already been pledged to several ongoing capital projects and some of it was restricted by the city code for designated purposes, the SEC lawyers said. Thus, the funds that were transferred should not have been considered unallocated and sent to the general fund, they said.

Boudreaux and the city allegedly made similar false representations to credit rating agencies, according to the SEC.

The SEC lawyers have said in previous filings that there are nine material misrepresentations and omissions, any one of which would give rise to a finding of liability. In its requests for partial summary judgment, the SEC had asked Altonaga to find that: the defendants made material misrepresentations and omissions; their fraudulent actions were in connection with the purchase or sale of securities; they used interstate commerce; and their affirmative defenses cannot succeed.

The commission is seeking an order that would mandate the city to comply with a prior cease-and-desist order from 2003 that resulted from an earlier securities fraud case, enter an injunction against the city and Boudreaux from future violations of securities fraud laws, and require the two defendants to pay an unspecified amount of civil penalties.

Lawyers for Boudreaux and the city have contended that the SEC does not have the evidence to support the fraud charges. They argue the claims cannot be based on the 2007 CAFR, which identified a $13.1 million transfer from the capital projects fund, because it was not incorporated into any of the three 2009 bond offerings cited in the complaint. They also say the 2008 CAFR did not have any misrepresentations and provided extensive information regarding the purposes of the three fiscal year 2008 inter-fund transfers and the circumstances under which they were made.

"Any reader of the 2008 CAFR … knew precisely what the city was doing and why it was doing so," the lawyers wrote in their own previous motion for summary judgment. "There is no false statement upon which any claim can be based, let alone fraud."

Boudreaux and the city are also challenging the SEC's arguments that the alleged misstatements and omissions were material, saying the commission is trying to hold them to a standard "which simply does not exist" and is higher than the widely accepted one set forth by the Governmental Accounting Standards Board. The rating agencies that made determinations based on the information the city provided also took a much more nuanced and holistic view of the city's finances than just the fund transfers, their lawyers say.

Additionally, they maintain that Boudreaux can show he relied in good faith on the advice of professionals including an independent accounting firm and city officials. The city and Boudreaux's lawyers claim there is undisputed evidence that Boudreaux preemptively ran his transfer ideas past an accounting firm representative who, after the presentation, was satisfied with Boudreaux's recommendation.

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