BRADENTON, Fla. - Miami officials will pay $1 million to settle securities fraud charges after the city was found guilty by a local jury of playing a shell game to hide its deteriorating financial condition from bondholders.
City commissioners, without making any public comments late Thursday, voted 4-0 to end the federal case brought in 2013 by the Securities and Exchange Commission by paying the largest civil penalty ever imposed against a municipality.
The vote, with Commissioner Wifredo Gort absent, came after a 45-minute meeting in private with their attorney at the end of a day-long meeting broadcast on the Internet.
The city didn't respond to requests for comment after the meeting, nor did they respond to a public records request for a copy of the settlement agreement.
City Attorney Victoria Mendez recommended the city take the deal with the SEC, "which will include but not be limited to an injunction against future violations of securities laws," according to a resolution accompanying the meeting agenda.
"I wonder whether there will be some kind of conditions on future bond issues," said Robert Doty, president of the municipal securities litigation consulting firm AGFS. "The agenda item indicated it was not a complete description of the settlement."
Doty said other settlements reached by the SEC have required issuers to adopt specific policies and procedures relating to accounting and auditing, conduct staff training, and hire additional personnel to handle internal responsibilities.
The SEC, he said, could also require that the city disclose the lawsuit and settlement in connection with future bond issues.
Miami commissioners are expected to discuss an upcoming bond issue at their meeting in November or December.
Federal Judge Cecilia Altonaga has ordered the SEC to file documents by Oct. 28 detailing the relief it will seek against the city and former budget director, Michael Boudreaux.
A jury on Sept. 14 found Miami and Boudreaux guilty of defrauding investors by not clearly disclosing improper interfund transfers to shore up depleted reserves in connection with three bond offerings in 2009.
Miami was found guilty on three charges of violating securities laws, while Boudreaux was exonerated on one charge and guilty of three others.
Boudreaux hasn't reached a settlement with the SEC. His attorney, Benedict Kuehne in Miami, said Oct. 5 that his client intends to file an appeal.
SEC Enforcement Director Andrew Ceresney said the commission was pleased with the jury verdict. He called Miami a "recidivist violator of federal securities laws" and said he anticipated Judge Altonaga would find that Miami violated a prior SEC order.
In 2003, the SEC found that Miami violated securities laws, and imposed a cease-and-desist order against the city stemming from its failure to disclose its deteriorating financial condition in three bond offerings in 1995.
In addition to undergoing the first ever municipal trial to face charges brought by the SEC, Miami is the only issuer ever to violate an existing cease-and-desist order.
Settling the SEC's current charges, however, won't end Miami's legal woes.
On Thursday, Florida's Third District Court of Appeal said that the auditor who uncovered the financial problems that led to the SEC case can proceed with a lawsuit against Miami.
Victor Igwe, the city's former independent auditor general, issued an audit in 2009 finding that the city violated its own ordinances by transferring capital improvement funds needed for ongoing projects to general fund reserves.
Igwe, who cooperated with the SEC's investigation, was later fired by the commission and subsequently filed a whistleblower lawsuit in circuit court.
The circuit judge agreed with the city's contention that Igwe could not be considered a whistleblower because his job required him to uncover violations and cooperate with the SEC.
The appellate court disagreed and ordered Igwe's whistleblower suit against the city to continue.