The Securities and Exchange Commission has charged the operator of Miami-Dade County, Fla.’s largest hospital with defrauding investors by failing to disclose its financial woes prior to an $83 million bond offering.
Public Health Trust agreed to a cease and desist order barring it from future violations of securities laws after an SEC investigation revealed “misrepresentations and omissions” in bond documents prior to the August 2009 sale, the commission said.
Miami-Dade County issued the bonds on behalf of PHT, which is overseen by the county commission and operates the county’s public hospital system, known as the Jackson Health System. Specifically, the bonds’ official statement misstated revenue figures due to breakdowns in a new billing system, the SEC said.
According to the SEC’s order, the official statement showed that PHT projected a $56 million non-operating loss for its fiscal year ending Sept. 30, 2009. Several months after the bonds were sold, external auditors discovered problems with the PHT’s patient accounts receivable valuation that required a large accounting adjustment to the PHT’s reported net income. PHT ultimately reported a non-operating loss of $244 million for fiscal year 2009, more than four times the figure listed on the official statement. The new billing system, implemented on Oct. 1 2008, was causing problems that resulted in many invoices not being returned, the SEC said.
PHT was aware of the deteriorating financial situation ahead of the bond sale, the SEC alleged, and used stale cash collection figures to generate the income projection despite the known problems with the new billing system. PHT trustees and management had raised questions about the accounts receivable figures prior to the sale, the SEC investigation found. The SEC order also flags PHT for failing to properly account for a $3.9 million arbitration award the trust was ordered to pay in December 2008. PHT failed to perform an analysis required by generally accepted accounting principles. The PHT therefore misrepresented that its 2008 audited financial statements, which were attached to the official statement, were prepared according GAAP.
The PHT’s conduct constituted a violation of sections 17(a)(2) 17(a)(3) of the Securities Act of 1933, the commission said. As part of the settlement, PHT neither admitted or denied the SEC’s findings.
“The Public Health Trust fell short in its obligation to maintain adequate accounting systems and controls that ensure truthful disclosures to investors about its financial condition,” said Eric Bustillo, director of the SEC’s Miami office. “The Public Health Trust used stale numbers to calculate its revenue figures and lacked any reasonable basis for projecting losses that were far less than reality.”
“Investors must be able to rely on the financial information accompanying municipal bond offerings, said Mark Zehner, deputy chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “We will continue to scrutinize financial statements provided to investors and pursue municipal issuers who aren’t providing accurate information to the public.”
The SEC said PHT cooperated with the investigation and took remedial action, including hiring outside consultants and restructuring the board.
“Jackson Health System has taken positive steps to correct problems found during the 2009 U.S. Securities & Exchange Commission inquiry into actions by a prior administration, a JHS spokesman said. “The SEC found that no further remedial action was necessary because of the positive steps taken by the trust since 2009 with respect to financial oversight. In a settlement unanimously approved by the Public Health Trust Board of Trustees yesterday, Jackson acknowledged that certain financial information furnished by former employees was not accurate or properly reported. Neither the SEC nor Jackson has found an intent to mislead.”