Cities and states across the country are using money designated for specific purposes—such as fixing roads or sewers—in order to fill financial holes elsewhere, according to public officials and records. The moves are exposing municipalities to controversy, as federal regulators and local auditors are more heavily scrutinizing their finances to protect bond buyers and taxpayers.
Then, in late October, the city’s former auditor sued, alleging in the suit that he lost his job because he flagged problems then “participated, at the request of the Securities and Exchange Commission, in an investigation into whether the City of Miami was engaging in behavior tantamount to stock fraud in the marketing of its municipal bonds.” Both so-called whistleblower cases are filed in a circuit court in Miami-Dade County.
There you go. Whatever is convenient is just fine, even if it leads people to invest unwisely.
You know, like when we sell someone a bunch of CDOs claiming they’re great investments while we’re passing emails around our desks asking who we’re going to unload our “****” or “vomit” onto?
Yeah, that behavior. Behavior that financial institutions have engaged in repeatedly and despite having entered in consent agreements have then done it again, and again, and in some cases again and again and again without meaningful consequence.
Is it any surprise that cities and states are doing the same thing?
Historically, the SEC has avoided financially penalizing municipalities, since taxpayers ultimately pay the penalty. So last year the agency tried a new approach—it fined individual officials in San Diego to settle allegations the city had misled bond investors.
In Miami, any new case would be a second offense. In 2003, the SEC ordered Miami to cease and desist from future violations of antifraud provisions after concluding the city had misled bond buyers by moving money among agencies to mask a deficit. The city maintained it did nothing wrong.
How about some handcuffs? Yeah, I know that the SEC can’t bring criminal charges — but the DOJ and State Attorney General can. 10 years with Bubba ought to be a sufficient disincentive to further cheating. Obviously “cease and desist” orders aren’t, and fining the people who got hurt isn’t so good either; all that does is screw the public twice.
Marc Sarnoff, a city commissioner, said that he and others weren’t aware that moving the funds was a potential violation of rules.
Is that because raising money under false pretense is so common that it wouldn’t be something that a commissioner would consider improper?