The 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 regulatory agency said in a civil complaint filed in federal court that it was seeking injunctive relief and financial penalties from the city as well as former budget director Michael Boudreaux.
Noting that the city 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 money 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.
"The fact that a city official would enable these false and misleading disclosures to investors merely a few years after Miami had been reprimanded by the SEC for similar misconduct makes this repeat behavior all the more appalling and unacceptable," Canellos said in a news release.
Similar misleading information was reportedly included in the city's fiscal year 2007 and 2008 Comprehensive Annual Financial Reports. Those reports are distributed to broad segments of the investing public, including investors in previously issued city debt.
According to the SEC complaint, Boudreaux orchestrated the transfers from the city's capital improvement fund to its general fund in order to mask increasing deficits in the general fund. Investors and bond rating agencies regularly use the general fund as a key indicator of financial health.
Boudreaux's attorney, Michael Pizzi, said his client is being used as a scapegoat and plans to be exonerated.
"This is an outrageous abuse of power by the SEC," Pizzi said. "Mr. Boudreaux was an employee of the city who made recommendations on filling budget gaps. Mr. Boudreaux was not responsible for decisions made by the mayor, the city manager and the commissioners."
The SEC's action charges the city of Miami with violating an SEC cease-and-desist order that was entered against the city in 2003 based on similar misconduct. This is the first time the SEC has alleged further wrongdoing by a municipality subject to an existing SEC cease-and-desist order.
A telephone message and email from the Associated Press seeking comment from the city of Miami weren't immediately returned
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 Associated Press contributed to this report)