City Bond Fraud

Types Of SEC Cases:  City Bond Fraud

Jury Finds Miami Liable For $153.5 Million City Bond Fraud

A Florida jury took less than a day to find the City of Miami (“Miami” or the “City”) liable for multiple counts of antifraud violations of the federal securities laws.  Additionally, the jury found Miami’s former Budget Director, Michael Boudreaux, liable for multiple counts of antifraud violations of the federal securities laws for his role in the city bond fraud that misled investors about the financial condition of the City in three separate offerings of municipal securities.

Materially False And Misleading Statements And Actions To Hide City Bond Fraud

The SEC’s court Complaint alleged that Miami and Michael Boudreaux made materially false and misleading statements and omissions related to inter-fund transfers that were material to three 2009 bond offerings totaling $153.5 million. The Complaint further alleged that Miami and Boudreaux orchestrated the inclusion of this false information into multiple years of the City’s Comprehensive Annual Financial Reports (CAFRs). According to the SEC, those actions were material because the CAFRs were distributed to the public, including investors who had previously invested in debt issued by the City. Boudreaux also enabled the city bond fraud by making transfers of $37.5 million from the City’s Capital Improvement Fund to its General Fund to hide growing deficits in the City’s General Fund. Investors and bond rating agencies use the General Fund as a key indicator of a municipality’s financial health. In a press release about the filing of the court case, the SEC’s Co-Director of the Division of Enforcement at the time stated:

Miami actively marketed bonds to the investing public while hiding the true reason for interfund transfers to boost the image of its primary operating fund … The fact that a city official would enable these false and misleading disclosures to investors merely a few years after Miami had been reprimanded by the SEC for similar misconduct makes this repeat behavior all the more appalling and unacceptable.  We will hold accountable not only municipalities, but also individual municipal officials for fraudulent disclosures to investors.

The Director of the SEC’s Miami Regional Office added:

Miami cannot continue to play shell games with its finances.  Investors and the markets deserve complete transparency in assessing the cityʼs municipal bond offerings.

First SEC Jury Trial Against A Municipality

The trial lasted for 2½ weeks.  When it was done, the jury took less than a day to reach its verdict finding the City of Miami and its former Budget Director liable for securities fraud. In an official public statement about the jury verdict, the Director of the SEC’s Division of Enforcement explained:

This was the first federal jury trial by the SEC against a municipality or one of its officers for violations of the federal securities laws.  We will continue to hold municipalities and their officers accountable, including through trials, if they engage in financial fraud or other conduct that violates the federal securities laws.

Whistleblowers Can Report City Bond Fraud To The SEC

This case illustrates some types of misconduct that could give rise to SEC whistleblower cases if reported to the Commission through the SEC whistleblower program. However, the SEC has not made any public statement as to whether this case was itself an actual SEC whistleblower case.  The SEC Office of the Whistleblower posts Notices of Covered Action (“NoCA”) for Commission actions where a final judgment or order results in monetary sanctions exceeding $1 million.  The NoCA list does not disclose if a particular Enforcement action was brought as the result of an SEC whistleblower case, tip, complaint, or referral being filed with the Commission.

Additional Information

For more information about city bond fraud, click on the links below:

• The SEC’s Public Statement announcing the jury verdict.  (External link to the SEC’s website.)
• The SEC’s court Complaint in SEC v. Miami.  (External link to the SEC’s website.)
• The SEC’s Press Release announcing the charges.  (External link to the SEC’s website.)
• Article discussing the case.  (Note:  External link to The Pickholz Law Offices’ website.)