NEW YORK, Oct 6 (Reuters) - Miami’s City Commission is set to consider paying a $1 million fine to settle securities fraud claims brought by the U.S. Securities and Exchange Commission, according to documents posted on the city’s website.
The proposed settlement would be the largest penalty the SEC has ever imposed on a municipal bond issuer, Robert Doty, a municipal litigation consultant, said on Thursday.
“I promise you that other municipal issuers and their legal counsel and their financial advisers are going to take serious note of this penalty,” Doty said.
On Sept. 14, a jury found the Florida city and its former budget director Michael Boudreaux liable for securities fraud in the sale of over $150 million in municipal debt in 2009. Penalties were not part of the jury trial.
The SEC’s 2013 lawsuit alleged the city and Boudreaux played “a shell game” by moving money among accounts to conceal Miami’s deteriorating financial condition from investors. Miami and Boudreaux had denied wrongdoing, saying the fund transfers were approved by auditors and publicly disclosed.
In a Sept. 22 court filing, the parties said they had reached a tentative settlement, though terms were not then disclosed. The deal must still be approved by the city commission, which will consider a resolution to approve it at an Oct. 13 meeting.
Miami City Attorney Victoria Mendez could not be reached for comment. SEC spokeswoman Judith Burns declined to comment.
Boudreaux has not reached a settlement with the SEC, his attorney Benedict Kuehne said in an emailed message on Thursday. The former budget director remains confident he will be fully exonerated, Kuehne said.
The lawsuit against Miami was the first SEC enforcement action against a municipal issuer to go to trial and a rare instance of monetary penalties being sought against a municipality.
The SEC has previously been reluctant to impose penalties that would be passed on to taxpayers, Doty said. But the SEC has in recent years sought to more tightly regulate the $3.7 trillion municipal bond market, and securities lawyers believe its success in Miami will further embolden the agency’s efforts.
The case is Securities and Exchange Commission v City of Miami et al, U.S. District Court, Southern District of Florida, No 13-cv-22600 (Reporting By Dena Aubin; Editing by Anthony Lin and David Gregorio)