The cash-beleaguered city of Miami is facing civil charges by the Securities and Exchange Commission (SEC) for allegedly manipulating its books to deceive bond investors. On July 23, the SEC sent a Well Notice to Miami city officials, outlining the SEC’s intention to recommend civil charges of securities fraud and other disclosure violations against the city.
A Wells Notice informs a person or entity that it is being pursued by the regulator for potential violations.
The letter did not specify that the allegations were related to bond issues but, according to a story in the Miami Herald, city officials confirmed that in fact the SEC has been investigating its disclosure of budget manipulation to municipal bond investors for the past two-and-half years.
According to the Miami Herald story, the SEC’s investigation began in 2009 when regulators started asking for information regarding transfers of millions of dollars in capital that had been set aside for building projects and were instead put into the general fund. The SEC contends that the move misled investors by giving the appearance that the city had more cash on hand than it actually did during the sale of tax-free bonds at the height of the housing crisis.
The city has until Aug. 6 to present testimony that it did not mislead bond buyers during the sale.