The U.S. Security and Exchange Commission (SEC) is the federal agency responsible for enforcing securities laws, regulating the securities industry, and regulating the stock and options exchanges.
In 2001, an SEC administrative judge ruled the city of Miami created the appearance of a balanced budget by using money from separate accounts to fill gaps in the general fund. The SEC found city of Miami administrators borrowed money from capital project accounts over a six year period, commencing in 1995, and never properly disclosed that fact to investors.
The SEC report detailing the ruling indicates the city of Miami violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, by making material false and misleading representations and omitting material information on its official statements in the offer and sale of 3 bond, (Sewer, Florida Power & Light, and Pension), issues. In addition, the city of Miami violated Section 10(b) of the Exchange Act by making false and misleading representations and omitting material information in its 1994 Comprehensive Annual Financial Report.
The final result was an issuance of a cease-and-desist order forbidding the city of Miami from repeating such practices.
Fast forward to 2009 when the SEC began an investigation into issues occurring between 2007 and 2009; issues very similar to those that were the subject of the 2003 SEC report. On July 23, 2012, the SEC notified the city of Miami of an investigation, alleging the city misrepresented its financial situation to investors before issuing bonds. Essentially the SEC believes the city of Miami manipulated its books to deceive bond investors.
This is the second time within the past 2 years the city of Miami has drawn the attention of the SEC, making it the only city in the United States with such a dubious distinction.
David Chase, an attorney who represents clients against SEC charges, and who was the lead investigator for the SEC during the 2001 investigation, has said, “I’m not aware of a municipality that has been down this road with the SEC twice.”
If the current SEC investigation confirms wrong-doing, it is unlikely the SEC will limit its sanction or penalty to another cease-and-desist order. It may not end there, as the SEC is also investigating city issued bonds used to finance the Miami Marlins baseball stadium; specifically, if investors were misled and if elected officials were improperly influenced.
Former City Manager (2003 – 2006), Joe Arriola, has said, “Why is anyone surprised? You can’t keep hiring idiots and think that you are going to get any kind of results.”
Former City Manager (1996), Merrett Stierheim, has said, “I’m not surprised at all that we’re going around this loop again. Historically, there has been great reluctance on the part of the commission to forthrightly deal with financial problems.”
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