The board that governs Miami-Dade’s public hospital system, which is asking voters to approve an $830 million bond issue in November, misled investors about the system’s deteriorating finances before another bond sale in August 2009, the U.S. Securities and Exchange Commission announced Friday after a three-year investigation.
The SEC charged the Public Health Trust that governs Jackson Health System with relying on bad financial information provided by hospital employees, which the board then passed on to investors through disclosure documents before the sale of $83.3 million in bonds for capital improvements.
But while the SEC found that Jackson’s board failed its obligation to ensure the accuracy of the financial information, the agency stopped short of accusing individual trustees or administrators of intentionally causing the deception.
Instead, the agency attributed the failure to inaccuracies in a new billing system, and accused the hospital’s budget department of using “stale cash collection numbers in the midst of known problems with the billing system.’’
In a written statement announcing the findings, Eric Bustillo, director of the SEC’s Miami office, said Jackson’s board failed to provide oversight to prevent the misstatements and errors.
“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,” Bustillo said. “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.”
A big mess
The misstatement of losses at the taxpayer-funded system was enormous. At the time of the bond, Jackson’s board projected a budget deficit of $56 million — only to report an actual loss of $244 million about six months later. The leap in losses triggered a grand jury investigation that concluded with a report calling the situation a “colossal mess.”
In Friday’s ruling, the SEC said it did not fine Jackson due to the hospital system’s fragile financial recovery, the board’s cooperation with investigators and remedial measures taken since 2009, such as the hiring of outside consultants and a restructuring of the board.
Instead, the Public Health Trust, which did not admit or deny the investigative findings, agreed to settle the charges with the SEC, which ordered the hospital board to stop committing or causing any further fraudulent transactions involving securities.
The announcement came days before the planned Sept. 17 launch of a political campaign to persuade Miami-Dade voters to raise their property taxes to repay $830 million in bonds that will fund improvements to Jackson’s aging facilities, along with equipment and more services.
Marcos Lapciuc, a member of Jackson’s board and the only remaining trustee from 2009, said on Friday that he discovered the financial reporting errors after the bond sale and took that information to the hospital system’s executive leadership, which has since been replaced.
Lapciuc, who was board treasurer at the time, said the SEC called him twice to testify during its investigation.
“They wanted to understand what happened, and not harm Jackson if there was no willful wrongdoing,’’ Lapciuc said. “It seems the system worked on this one.’’