At issue in the SEC investigation is an $83.3 million bond sale by Miami-Dade County to raise money for capital improvements at Jackson that included upgrading fire alarms and renovating elevators. The bonds were to be repaid solely from Jackson’s revenues.
Based on the 2009 bond prospectus, Fitch Ratings gave the bonds an A+ rating with stable outlook.
Yet federal investigators who examined reams of accounting documents, financial projections and internal emails found that Jackson’s board had wildly underestimated its losses, jumping from the original $56 million to more than four times that amount, at $244 million.
According to the SEC’s findings, the hospital board was aware before the sale of the bonds that its financial condition was deteriorating — but perhaps not the extent of the crisis.
The SEC also found that a lack of communication among hospital departments led to the budget department not updating its collection rates on time, which may have revealed the problem sooner.
But the obligation to ensure that information was accurate rested squarely with Jackson’s board.
“PHT [Public Health Trust] lacked a reasonable basis to support its projected $56 million non-operating loss … contained in the official statement,’’ according to the SEC’s official order.
The federal agency also charged Jackson’s board with failing to properly account for an adverse arbitration award from 2008, and misrepresenting that the hospital system’s 2008 audited financial statements were prepared according to generally accepted accounting principles.
The SEC’s findings echo the Miami-Dade grand jury’s fall 2009 conclusion of the “colossal mess’’ at Jackson. The report said Jackson executives, the hospital board, county commissioners and administrators all knew that the system’s financial picture was catastrophic — and they did nothing to prevent the crisis.
The grand jury’s report made numerous references to the lack of planning, and willful ignorance of financial warnings by the County Commission and the board that ran Jackson.
“It was abundantly clear in June of 2008,” the report stated, “that disaster was afoot. The warning bell had rung. History refutes any claim of ignorance.’’
Lapciuc said the report led to reforms that restructured the board and helped turn around Jackson’s financial performance.
“It has been remedied beyond my wildest expectations,’’ he said.
In May, Jackson administrators declared the hospital system solvent for the first time in five years. And they are projecting a better-than-expected $37 million budget surplus for the 11 months ending Aug. 31.
Matthew Pinzur, a Jackson spokesman, issued a written statement Friday distancing the current administration from those involved in the 2009 bond issue, noting that the SEC violations were committed by prior hospital administrators. Jackson’s board unanimously accepted a settlement with the SEC Thursday.
“Jackson Health System has taken positive steps to correct problems found during the 2009 U.S. Securities & Exchange Commission (SEC) inquiry,” the statement read, in part.
“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.”