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The Securities and Exchange Commission filed a brief last week that spells out its administrative case against the city of Miami. The post-hearing brief and proposed finding of fact by SEC regional trial counsel Mitchell E. Herr alleges that at the height of Miami’s fiscal crisis in May 1995, city officials knew they were one month away from being unable to meet payroll. The brief to an administrative law judge says a cost-cutting program called Operation Right Size would reduce the projected $35 million to $40 million deficit by only $5 million. Officials drained a stormwater facility improvement fund and other inappropriate sources to plug the financial gorge, as it widened every day. They ordered up three different bond offerings to come up with cash to keep the city afloat. But none of this crisis found its way into the city’s Comprehensive Annual Financial Report during 1994 or 1995, or in any financial document readily available to bond investors. The 50-page document, submitted to the SEC’s chief administrative law judge, Brenda Murray, follows three days of hearings that took place in March. Attorneys for the city are scheduled to submit their proposed findings next month. The SEC is seeking a cease and desist order that essentially would tell the city to stop committing fraud in issuing annual financial statements or in handling bond sale disclosures. “We absolutely do not seek any penalty against the citizens of Miami, nor will it legally impair Miami’s ability to raise money in the future,” Herr said. Thomas Tew Jr., the city’s lead counsel in the matter, said Wednesday that the SEC filing amounts to “a 60-page press release.” The city has said, almost from the start of the SEC’s four-year investigation, that municipal officials relied on the city’s accounting firm, Deloitte & Touche — which it is now suing — and on due diligence by other outside experts. “We hired top auditors. There were top underwriters, top underwriters’ counsel and top bond counsel, none of whom raised the slightest question that any of the three bond offerings’ official statements contained any omissions or misstatements,” Tew said. The SEC brief argues that such reliance doesn’t relieve city officials of primary responsibility for financial disclosure. The brief takes a particularly dim view of what it the SEC sees as City Commissioner Willy Gort’s failure to take a more active role in the process, since Gort is a securities professional who did municipal bond work. Gort, the SEC brief says, “is a veritable poster child for Miami’s indifference to proper disclosure.” The brief cites testimony by Gort that before the bond sales, “he did not read a single paragraph, sentence, line or number from Miami’s financial statements, claiming only to have read Deloitte’s audit letter.” When asked by the Review how much detail a city commissioner could reasonably be expected to know, SEC lawyer Herr said, “Wherever you would draw the line, [Gort] would fall outside of it.” Gort countered that as a commissioner, he doesn’t serve as a certified public accountant or a lawyer. “We depend on all the information we get from the experts — auditors’ reports, the finance director, the attorneys and from the rating agencies.”

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