SEC set to bring civil charges against Miami in muni bond probe

Two years ago, the Securities and Exchange Commission brought its first-ever enforcement action against a state, accusing New Jersey of deceiving municipal bond investors about the state’s unfunded pension liabilities. The case was a wake-up call. Bloomberg predicted a wave of similar SEC suits against muni bond issuers, the National Association of Bond Lawyers convened a task force pension obligation disclosure, and the enforcement bar braced for action.

And then … nothing. Well, not exactly nothing. In October 2010 the SEC’s municipal securities unit announced a settlement with two officials from San Diego, in a case that dated back to the commission’s 2008 settlement with the city for underreporting pension liability to bond investors. There were reports of SEC investigations of bonds issued by the city of Victorville, California, and of California’s disclosure of obligations to its gigantic public employees’ pension fund. The SEC also worked with the Justice Department on its municipal bond bid-rigging case against several major banks, and reached its own $51.2 million muni bond bid-rigging settlement with JPMorgan Chase in 2011. But the expected wave of enforcement actions didn’t materialize. “Candidly, I expected to see a lot more,” said Thomas Gorman of Dorsey and Whitney, who writes the SEC Actions blog. “These are complicated cases and they take a long time, but it’s been a while.”

Wait no more. On Monday, the SEC sent a Wells Notice to Ivan Harris of Morgan, Lewis & Bockius, who represents the city of Miami. The letter confirmed that the SEC staff intends to recommend civil charges of securities fraud and other disclosure violations against the city. The letter does not specify that the allegations relate to bond issues, but city officials confirmed to The Miami Herald that the SEC has been investigating its disclosure of budget manipulation to muni bond investors.

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