Having already spent millions on a failed defense effort, the city of Miami will consider paying a record $1 million civil penalty to the Securities and Exchange Commission after losing a securities fraud trial last month.
Should city commissioners approve a proposed settlement Thursday, it would put to bed any notion of an appeal of the Sept. 14 jury verdict that found the city and former budget director Michael Boudreaux played shell games with public money in the late 2000s in order to hide gaping losses from bond investors.
It would also push the final tab for the city’s defense well beyond $3 million.
According to invoice logs compiled by the Miami City Attorney’s Office through early August, the city spent $2.625 million on attorneys and experts dating back to late 2009, when federal regulators first began asking questions about a series of problematic financial transfers. The final tally will likely be higher, since the logs, obtained this summer by the Miami Herald through a public records request, do not include any invoices submitted during the final two months of the case, including the nearly three-week trial.
We’ve spent a lot of money on attorneys
Mayor Tomás Regalado
“We’ve spent a lot of money on attorneys and if we want to continue litigation it would cost more,” said Mayor Tomás Regalado, who had hoped the city would be let off without a civil penalty. “We need to send the message to Wall Street that we settled, it’s part of the past and we’re moving on.”
Eric Bustillo, regional director of the SEC’s Miami office, declined to comment.
The SEC accused the city and Boudreaux in 2013 of manipulating Miami’s finances through illegal transfers in the late 2000s to make the city’s collapsing finances appear stable and help sell municipal bonds on the market. Both defendants denied the allegations, but a federal jury agreed that the city was liable on two counts of violating the federal Securities Act and one count of the Exchange Act.
The jury also found Boudreaux liable on one count of violating the Securities Act and two counts of the Exchange Act, but found he had not engaged in a scheme to defraud investors in violation of the Securities Act. On Monday, his attorney, Benedict Kuehne, said Boudreaux still intends to challenge the verdict and “remains confident he will be fully cleared and able to restore his good name.”
If the commission agrees to pay the civil penalty, it would set the record for fines paid by a municipal bond issuer. Earlier this year, the SEC said an agricultural water district in California set the record when it paid $125,000. The SEC has until Oct. 28 to file a proposed agreement with the court.
As part of the proposed settlement, the city would also agree to a court-ordered injunction barring Miami from committing further violations of the Securities Act, according to a memo by the city attorney. Among its findings, the federal jury said Miami officials violated a 2003 cease-and-desist order implemented after a previous administration was caught violating securities laws in the mid-1990s.
$2.625 million The amount Miami spent on attorneys and experts through Aug. 2
The settlement does not include an admission of liability by the city. Commissioners declined to settle the case before trial largely because they say federal attorneys wanted the city to admit to having committed securities fraud, an issue that is now moot after the jury issued its verdict.
If the fine is approved, the city will take the money out of its approximately $137 million fund balance — an account that, after being at the heart of the SEC’s case, is ironically healthier than it’s been in more than a decade.