SEC charges city of Miami with fraud

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Miami at night

The U.S. Securities and Exchange Commission charged the city of Miami and its former budget director with fraud on Friday for allegedly making misleading statements and omissions in bond documents in order to mask general fund deficits.

The SEC, which has limited authority over America's $3.7 trillion municipal bond market, has over the last few months cracked down on issuers for failing to provide bond buyers with accurate and timely information.

The U.S. regulator said it was seeking injunctive relief and financial penalties from Miami as well as from former budget director Michael Boudreaux.

Noting that Miami was already under a cease-and-desist order for similar misconduct in 2003, the regulators said in a written statement that starting in 2008 Boudreaux had moved $37.5 million among city funds to disguise financial weaknesses from investors looking at three 2009 bond deals worth $153.5 million.

"Miami actively marketed bonds to the investing public, while hiding the true reason for interfund transfers to boost the image of its primary operating fund," said George Canellos, co-director of the SEC's Division of Enforcement.

A city of 414,000 people with a Republican mayor, Miami intends to fight the SEC complaint filed in U.S. District Court, according to Ivan Harris, an outside lawyer for the city.

"The city made detailed disclosures, complied with GAAP (generally accepted accounting principles), received clean audits, and its bond prices remain stable," he said. "How the SEC says fraud occurred is beyond me."

Nearly a year ago, lawyers for Miami offered to shake up its financial staff as part of a proposal to settle the looming civil securities-fraud charges.

The SEC, after bringing landmark charges against Pennsylvania's capital city of Harrisburg in May for making allegedly misleading statements outside of disclosure documents, charged Florida's South Miami with fraud for not disclosing problems with the tax-exempt status of two bond deals.

Earlier this year, the agency accused Victorville, California, of fraudulently inflating the value of property used to secure a bond sale. In March, it settled with Illinois for misleading investors about employee pension problems.

Victorville, though, was the only other instance where the SEC also charged individuals.

—By Reuters.