Cash-strapped Miami is once again being threatened with civil charges for allegedly manipulating its books to deceive bond investors — a fraudulent practice that one former city leader blamed on a “culture of incompetence’’ at City Hall.
“Why is anyone surprised?” former City Manager Joe Arriola said Tuesday, referring to a new civil enforcement action from the U.S. Securities and Exchange Commission. “You can’t keep hiring idiots and think that you are going to get any kinds of results.”Former City Manager Merrett Stierheim said city commissioners have repeatedly lacked the “intestinal fortitude” to raise taxes and get tough with unions, resorting instead to manipulating the numbers.
“I’m not surprised at all that we’re going around this loop again,” Stierheim said. “Historically, there has been great reluctance on the part of the commission to forthrightly deal with financial problems.”
This is the second time in a dozen years Miami has run afoul of the SEC, making it the only city in the United States that can claim such a dubious distinction.
Late Monday, the SEC sent Miami a letter alleging the city had misrepresented its financial situation to investors before issuing bonds. The letter did not state which bond issues are targeted, but people familiar with the investigation told The Miami Herald the sales occurred between 2007 and 2009. The agency said it may file a lawsuit seeking civil fines or a cease-and-desist order against the city.
The stinging communication was the result of a 32-month investigation that began in 2009, when The Miami Herald found that city financial managers had moved $26.4 million from capital-project coffers into the general fund. The SEC contends that the move misled investors by giving the appearance of a balanced budget immediately before bond issues needed to finance improvements to city streets and sidewalks.
Also caught in the SEC’s headlights: former city budget director Michael Boudreaux, who received the same letter Tuesday, his attorney said. It was unclear if any other city officials have also been targeted. SEC Regional Director Eric Bustillo declined to comment.
City officials vowed to fight the accusations. Miami Mayor Tomás Regalado said the city’s lawyers are preparing a response letter arguing that charges are not warranted. He did not elaborate.
Regalado, who was a city commissioner when the budget and the bond issues facing scrutiny were approved, said his administration has hired a new budget director and chief financial officer in a bid to improve the city’s financial controls.
Manny Diaz, the mayor at the time, did not return calls. Neither did former City Manager Pete Hernandez, former chief financial officer Larry Spring nor former finance director Diana Gomez, who along with Boudreaux were responsible for signing off on the city’s financial documents.
Miami now owns a title that city leaders might rather forget.
“I’m not aware of municipality that has been down this road with the SEC twice,” said David Chase, an attorney who represents clients against SEC charges, and who was the lead investigator for the SEC when the city was last charged by the agency in 2001.
A third round of sanctions could be on the way. The SEC is also investigating city-issued bonds used to finance the Marlins Ballpark. Investigators want to know if investors were misled, and if the elected officials who championed the project were improperly influenced.