By Zachary Fagenson and Daniel Bases
MIAMI/NEW YORK (Reuters) - The city of Miami and its former budget director were found liable by a Florida jury on Wednesday for engaging in a financial shell game in a case brought by the U.S. Securities and Exchange Commission stemming from a municipal bond sale.
Taking less than a day to deliberate, the jury found the city of Miami and former budget director Michael Boudreaux violated the federal Securities Act in the process of selling over $150 million worth of municipal debt in 2009.
In a 2013 complaint, the SEC alleged that the city and Boudreaux violated the anti-fraud provisions of federal securities law.
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The nine-person jury found the city of Miami liable on two counts of violating the Securities Act and one count of violating the Exchange Act and Exchange Act rules. It found Boudreaux liable for two counts of violating the Securities Act, though in one count noted he did not use a fraudulent scheme to sell a security.
The SEC called Miami a "recidivist violator" of federal securities laws and warned that this first federal trial by jury against a municipality or one of its officers might not be the last.
"We will continue to hold municipalities and their officers accountable, including through trials, if they engage in financial fraud or other conduct that violates the federal securities laws," the SEC said in a statement.
Boudreaux was also found liable on two counts of violating the Exchange Act and Exchange Act rules.
"I'm very disappointed by all of this," Boudreaux told reporters as he left the courtroom.
Boudreaux's attorney, Benedict Kuehne, indicated plans to appeal the jury's decision.
"That the jury found Mr. Boudreaux did not engage in a fraud on count one raises significant questions about the validity of the entire verdict," Kuehne said.
City of Miami attorney Victoria Mendez said in a statement to Reuters: "While we respect the jury and the judicial process, we are disappointed in the jury’s verdict. We are reviewing the record to determine how to proceed at this point."
Amie Riggle Berlin, senior trial counsel for the SEC, told the court that the regulator would present its request for injunctive relief and monetary penalties within the next two weeks.
The lawsuit alleged both the city and Boudreaux failed to tell credit rating agencies and investors they had churned money through various city accounts in an attempt to keep its general fund above a minimum, city-mandated, $100 million mark.
According to the SEC's complaint, in 2007 and 2008 Boudreaux wrongly told city officials that certain amounts of money he planned to transfer into the city's general fund were unused, when in fact they were being redirected from the city's capital projects.
Boudreaux was fired in 2010.
"That the SEC has prevailed in this case is another reminder that the Enforcement Division in recent years has dramatically increased focus on municipal offerings, an area that will continue to attract regulatory scrutiny for at least the near term," said Jonathan Shapiro, a partner at Baker Botts in San Francisco, who was not involved in the case.
(Reporting By Zachary Fagenson in Miami and Daniel Bases in New York; Additional reporting by Jonathan Stempel and Dena Aubin in New York; Editing by Chris Reese and Bill Rigby)