One of these days, Tomás Regalado may finally experience what it’s like to be mayor of a city that is not defending charges or responding to investigations by the Securities and Exchange Commission. Or, maybe not.
Regalado was elected mayor of Miami in late 2009, right around the time the SEC began to investigate whether the city had tapped restricted funds in order to cook its books during a financial meltdown and lubricate the sale of municipal bonds to investors. In 2013, as Miami continued to grapple with shaky finances, the SEC brought charges against the city.
Since then, the city has rebounded from the depths of a recession and recovered much of its credibility. Just a few weeks ago, Moody’s, one of the bond rating agencies allegedly hoodwinked in the late 2000s by the city’s budget staff, improved Miami’s financial outlook and praised the city’s “strong new management team” for righting the ship.
Regalado hopes his administration has done enough since he took office to resolve an ongoing lawsuit and avoid penalties sought by federal regulators. But having already been hit with SEC sanctions in 2003 for essentially the same violations, the city has been labeled a repeat offender, and the sins of the past continue to haunt the present.
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This month, after nearly two years of appeals-related delays, the SEC reignited its lawsuit seeking fines from the city and an order to enforce the SEC’s sanctions against Miami in 2003 barring the city from violating anti-fraud provisions of federal securities laws. The agency is also going after the city’s former budget director, Michael Boudreaux, who denies that he was the architect of a scheme to fool investors into believe the city’s bond offerings were safer investments.
A trial date has been scheduled one year from now — a full decade from the start of Miami’s questionable financial decisions — and court filings show there is little hope of settling. Still, Regalado hopes the agency won’t come down too hard on the city.
“Everything they said we needed to do, we have done it,” said Regalado, who was on the city commission when they voted to authorize the transactions now questioned by the SEC. “The only logical thing that I see is for the SEC to say ‘You have corrected, don't do it anymore, we will be watching.’ But I'll be surprised if we get fined because they will be punishing the people of Miami and an administration that has nothing to do with the past.”
SEC lead attorney Amie Riggle Berlin and Miami regional office director Eric Bustillo declined Friday to respond to Regalado’s comments or discuss the merits of the case. But the agency has not backed off its quest for civil penalties against the city, which according to public records has spent more than $2 million on outside legal counsel defending and advising the city and its employees.
That the city would still be grappling with the case has been frustrating to some city officials, even though some critics believe the city erred by not trying to settle quickly. But SEC cases tend to move at a glacial pace. And Ryan O’Quinn, a defense attorney and former senior counsel for the SEC’s enforcement division, said the agency sees its cases through to resolution as a matter of principle.
Often times, that means that just like the cost of bonding out projects to raise money up front, the price of manipulating finances is kicked years down the road.
“The real story here is that costs are incurred at a different time than the benefit is enjoyed, and then what you have is people able to take the benefit for political gain and stick the cost on somebody that comes after them,” said O’Quinn.
Regalado’s administration, however, isn’t entirely disassociated with the actions under scrutiny. As a commissioner, he endorsed some of the moves that the SEC has classified as illegal, even if commissioners say they acted based on advice from the city’s staff. His administration also continues to defend against two whistleblower lawsuits filed by former city auditor Victor Igwe, who says he was ousted from his post in 2011 due to his exposure of the city’s illegal money transfers and his cooperation with the SEC.
There’s also the fact that Miami is accused of violating anti-fraud laws just a few years after the SEC imposed an order prohibiting the city from engaging in that type of behavior. At the time, the city’s outside attorney argued that even that move was overreaching by the SEC and unfair to a city regime that had nothing to do with violations in 1995.
Miami City Attorney Victoria Méndez declined an interview for this story, but wrote in an email that the city “will continue to work with the SEC toward a favorable resolution in the near future.”
Even if that case is resolved soon, Miami may not be free of SEC charges. The agency continues to look into the city’s borrowing in 2010 of about $120 million to finance the construction of parking garages around Marlins Park.
The case has been quiet for years. But Méndez said the city produced records for the case at the request of the SEC as recently as Aug. 4, meaning the probe remains active even as the agency might be running up against a five-year statute of limitations. Spokesmen for the Miami Marlins and Miami-Dade County, which was also queried by the SEC, did not respond to requests for information.
Regalado’s time as mayor will end in about two years due to term limits, so it’s possible his entire tenure will be under the SEC’s microscope. But Regalado says the city is in better position than when he took over.
“Everything has been fixed,” he said, “and we're moving forward.”