Federal Regulators at The Securities and Exchange Commission (SEC) have informed city officials in Miami that they plan to take action after an investigation determined that city officials misled municipal bond buyers. According to the investigation, the city misrepresented its fiscal health during the sale of tax-free bonds at the height of the housing crisis. The SEC is said to be seeking fines and penalties through a civil action.
The regulator is giving the city until August 6th to present testimony that it did not mislead bond buyers during the sale. The city has said that the SEC is wrong and that the investigation is unwarranted. As of March the city was already in talks to settle charges that it violated the rules during a $65 million municipal bond sale.
According to the SEC, which confirmed its plan to the Miami Herald, the city has been under investigation since 2009 when regulators started asking for more information around transfers of capital set aside for building projects that were put into the general fund, thereby making the city appear to have more cash on hand than it actually did.
As CivSource has reported before, individuals are the largest holders of municipal bonds which are typically tax free and issued by cities to fund projects like infrastructure renovations and upgrades. Miami is not the first city to be part of an SEC probe over municipal bond issuances during the financial crisis, cities in New Jersey and California have also faced similar allegations.
When the SEC brought charges in the New Jersey case, Bloomberg predicted that a wave of such cases was likely to transpire given the depth of questionable practices happening at all levels of finance and government in the municipal bond market, however, few cases have really moved forward since that piece. The City of Miami received what is known as a Wells Notice from the SEC, for their activities. A Wells Notice informs a person or entity that it is being pursued by the regulator for potential violations. These notices are more common to individuals or firms that are under investigation for activities like insider trading, however, the regulator has the enforcement ability to send such notices to any person or entity violating financial rules.
So far, the SEC has declined to comment publicly on the Miami case.
