Res No 111-13-13929RESOLUTION NO.
111 -13 -13929
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A Resolution of the Mayor and City Commission of the City of South Miami,
Florida, authorizing the City Manager to execute an Offer of Settlement with
the United States Securities and Exchange Commission concerning certain
parking garage related securities law violations and authorizing necessary
actions for implementation of the Order accepting the Offer of Settlement.
Whereas, the City of South Miami ( "the City ") caused to be issued certain bonds and
entered into a loan (collectively, the "Indebtedness ") for the construction of the City's parking
garage, all as more particularly described in the excepts of the memorandum of Squire, Sanders &
Dempsey (US) LLP, dated May 11, 2011 presented at this meeting (the "SSD Memorandum ");
and
Whereas, the Indebtedness was intended to be tax - exempt; and
Whereas, as described in the SSD Memorandum, as a result of certain actions, the City
approached the United States Securities and Exchange Commission ( "Commission "); and
Whereas, in anticipation of the Commission's initiation of cease - and - desist proceedings
against the City, the City and the Commission have been negotiating to settle the allegations of
certain securities law violations; and
Whereas, the Offer of Settlement contains the terms negotiated with the representatives of
the Commission, and the Commission's acceptance of this Offer of Settlement will resolve and
conclude the investigation conducted by the Commission.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND CITY
COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA:
Section 1. The City Manager is hereby authorized to execute the Offer of Settlement
of City of South Miami, Florida, attached hereto, with the United States Securities and Exchange
Commission in connection with the investigation conducted by the Commission. In this regard,
the City Manager is hereby authorized to undertake such actions as he may deem necessary and
advisable, including the execution of such documentation as may be required by the Commission,
in order to carry out the foregoing and to implement the provisions of this Resolution.
Section 3. Severability. If any section clause, sentence, or phrase of this resolution is for
any reason held invalid or unconstitutional by a court of competent jurisdiction, the holding shall
not affect the validity of the remaining portions of this resolution.
Section 4. Effective Date. This resolution shall become effective immediately upon
adoption by vote of the City Commission.
PASSED AND ADOPTED this21 stday of May
2013.
Pg. 2 of Res. No. 111-13-13929
ATTEST:
CITY CLERK
READ ANW
LANGU AGE.
TO FORM,
APPROVED:
d W CG I
MAY R
COMMISSION VOTE: 5 -0
Mayor Stoddard: Yea
Vice Mayor Liebman: Yea
Commissioner Newman: Yea
Commissioner Harris: Yea
Commissioner Welsh: Yea
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From:
Date
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CITY OF SOUTH MIAMI
OFFICE OF THE CITY ATTORNEY
INTER- OFFICE MEMORANDUM
The Honorable Mayor, Vice Mayor and Members of the City
Commission
Maria Menendez, City Clerk
Thomas F. Pepe, City Attorney
May 1, 2013
ITEM No.
SUBJECT:
A Resolution of the Mayor and City Commission of the City of South
Miami, Florida, authorizing the City Manager to execute an Offer of
Settlement with the United States Securities and Exchange Commission
concerning certain parking garage related securities law violations and
authorizing necessary actions for implementation of the Order accepting the
Offer of Settlement.
dP
SUMMARY OF REQUEST:
The Resolution is the first step to completing the negotiated settlement of the
security law violations that arose out of the issuance of tax exempt bonds used to
finance the construction of the city's parking garage. In order to settle charges that
have been brought or threatened by the United States Securities and Exchange
Commission ( "SEC "), it is necessary to negotiate with their counsel to determine
what might be agreeable to the SEC. Attached to the resolution is the negotiated
Offer of Settlement, which, if approved by the commission, will be sent to the
SEC. The Offer of Settlement recites all of the substantive terms of what we
anticipate will be contained in the SEC's Order. Procedurally, the City must make
the first offer and then the SEC issues its order which accepts the offer. While the
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SEC could, theoretically, refuse, it is more likely that the SEC will accept the offer
and issue the order.
Attached are.
19 Proposed Resolution, and
I City's Offer of Settlement
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2
3
4
5
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6 Excerpts from May 11, 2011 Squire Sanders Memorandum
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7 Background on the Debt. The City of South Miami, Florida ( "City ") entered into a Loan
8 Agreement ( "2002 Loan Agreement ") dated May 1, 2002 with the Florida Municipal Loan
9 Council ( "Issuer ") pursuant to which the Issuer issued an allocable portion of its Revenue Bonds,
10 Series 2002A ( "2002 South Miami Council Bonds ") and loaned the City $6,528,627.15 ( "2002
11 Loan "). The 2002 South Miami Council Bonds were tax exempt bonds. Under the 2002 Loan
12 Agreement the City covenanted to take all necessary actions to preserve the tax exempt status of
13 the 2002 South Miami. Council Bonds. The proceeds of the 2002 Loan were to be used to
14 finance a public parking garage ( "Garage Project ") in the City. The Garage Project was to be
15 constructed by Mark Richman Properties, a developer ( "Developer "). The Garage Project was
16 delayed for several years. The 2002 South. Miami Council Bonds are eligible for redemption on
17 May 1, 2012, at a price of 101% of the then outstanding principal amount.
18 The City then entered into a Loan Agreement ( "2006 Loan Agreement ") dated December
19 1, 2006 with the Issuer pursuant to which the Issuer issued an allocable portion of its Revenue
20 Bonds, Series 2006 ( "2006 South Miami Council Bonds" aid together with 2002 South Miami
21 Council Bonds, the "Council Bonds ") and loaned the City $5,629,708.40 ( "2006 Loan" and
22 together with the 2002 Loan, the "Council Loans "). The 2006 South Miami Council Bonds were
23 also tax exempt bonds. Under the 2006 Loan Agreement the City again covenanted to take all
24 necessary actions to preserve the tax exempt status of the 2006 South Miami Council Bonds. The
25 proceeds of the 2006 Loan were to be used to finance additional costs of the Garage Project. The
26 2006 South Miami Council. Bonds are eligible for redemption on October 1, 2016, at a price of
27 100% of the then outstanding principal amount.
28
Construction was completed and
the Garage Project opened in
the fall of 2007. For a few
29
months, parking was
free. Beginning in
January of 2008, parking rates
were implemented.
30 In March of 2008, the City entered into a Loan Agreement with Bank of America, N.A.
31 pursuant to which Bank of America, N.A. loaned $1,000,000 to the City ( "2008 Bank Loan")
32 and $700,000 of the proceeds paid for additional improvements to the Garage Project while
33 $300,000 of the proceeds reimbursed the City for public improvements related to the Garage
34 Project. The 2008 Bank Loan was a taxable obligation and the City therefore made no covenants
35 regarding the tax status of the 2008 Bank Loan.
36 On April 7, 2009 the City entered into a Loan Agreement ( "2009 SunTrust Loan
37 Agreement ") with SunTrust to refund the 2008 Bank Loan. Pursuant to the 2009 SunTrust Loan
38 Agreement, SunTrust loaned ( "2009 SunTrust Loan ") $1,000,000 to the City and the City used
39 that money to pay off the 2008 Bank Loan. The 2009 SunTrust Loan was a tax exempt loan. In
40 the 2009 SunTrust Loan Agreement the City again covenanted to protect the tax exempt status of
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1 the 2009 SunTrust Loan, The SunTrust Loan is immediately callable at a price of 100% of the
2 then outstanding principal amount.
3 The 2002 South Miami Council Bonds are currently outstanding in the amount of
4 $5941500. The 2006 South Miami Council Bonds are currently outstanding in the amount of
5 $5,250,000. The 2009 SunTrust Loan is currently outstanding in the amount of $834,900.
6 Background on "Private Loan" and "Private Activity ". $2,500,000 of the proceeds of
7 the 2002 Loan were in turn loaned to the Developer ('Developer Loan ") on June 12, 2002. The
8 City also entered into a Lease Agreement with the Developer on March 11, 2005 ('Developer
9 Agreement ") whereby the Developer would operate the Garage Project and retain certain income
10 ftom the Garage Project for a term of 50 years from the opening date of the Garage Project. Thus
11 the Developer Agreement expires in 2057 as the Garage Project was completed in 2007. These
12 two actions constituted an impermissible private loan and impermissible private activity,
13 respectively, under Section 141 of the Internal Revenue Code of 1986, as amended ( "Code "),
14 adversely affecting the governmental status of the Council Bonds. The private loan arose
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16 the Developer Agreement. It did not occur until parking rates were first charged at the Garage
17 Project in January of 2008.
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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No.
In the Matter of
CITY OF SOUTH MIAMI, FLORIDA
Respondent.
I.
OFFER OF SETTLEMENT OF
CITY OF SOUTH MIAMI, FLORIDA
City of South Miami, Florida ( "City" or "Respondent "), pursuant to Rule 240(a) of the
Rules of Practice of the Securities and Exchange Commission ( "Commission ") [17 C.F.R. §
201.240(a)] submits this Offer of Settlement ( "Offer ") in anticipation of cease - and - desist
proceedings to be instituted against it by the Commission, pursuant to Section 8A of the Securities
Act of 1933 ( "Securities Act ").
II.
This Offer is submitted solely for the purpose of settling these proceedings, with the express
understanding that it will not be used in any way in these or any other proceedings, unless the Offer
is accepted by the Commission. If the Offer is not accepted by the Commission, the Offer is
withdrawn without prejudice to Respondent and shall not become a part of the record in these or
any other proceedings, except for the waiver expressed in Section V. with respect to Rule 240(c)(5)
of the Commission's Rules of Practice [ 17 C.F.R. § 201.240(c)(5)].
III.
On the basis of the foregoing, the Respondent hereby:
A. Admits the jurisdiction of the Commission over it and over the matters set forth in
the Order Instituting Cease - and - Desist Proceedings Pursuant to Section 8A of the Securities Act
of 1933, Making Findings, and Imposing Remedial Sanctions and a Cease - and - Desist Order
( "Order ");
B. Solely for the purpose of these proceedings and any other proceedings brought by or
on behalf of the Commission or in which the Commission is a parry prior to a hearing pursuant to
the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., and without admitting or denying
the findings contained in the Order, except as to the Commission's jurisdiction over it and the
subject matter of these proceedings, which are admitted, consents to the entry of an Order by the
Commission containing the following findings I and remedial sanctions set forth below:
SUMMARY
1. This matter involves a municipality that jeopardized the tax - exempt status of
municipal bonds by improperly utilizing proceeds received through a conduit borrowing. The City
of South Miami, Florida misrepresented and omitted material information concerning the
eligibility of a parking garage for tax - exempt financing in a pooled conduit municipal bond
offering in 2006 by the Florida Municipal Loan Council ( "FMLC "). The City borrowed funds in
2002 and again in 2006 to construct the largest municipal parking garage in its principal downtown
commercial district. The Citv's narticioation in the offering enabled it to borrow funds from the
FMLC at advantageous tax - exempt rates.
2. The City omitted to disclose to the FMLC that it had jeopardized the tax - exempt
status of both bond offerings by impermissibly loaning proceeds from the offering to a private
developer ( "Developer ") and restructuring the parking garage lease agreement with the Developer
prior to the 2006 bond offering. In documents prepared in connection with the 2006 offering, and
explicitly relied upon by Bond Counsel in rendering its tax opinion attached to the Officiai
Statement, the City made material misrepresentations and omissions regarding: (1) the use of the
proceeds of the offering and, (2) the altered terms of the parking garage lease.
3. The City's misrepresentations and omissions had a material impact on the tax -
exempt status of the municipal securities issued in connection with this offering. In July 2010, the
City filed a material event notice and disclosed for the first time the adverse impact of its actions
on the tax - exempt status of the two bond offerings. In August 2011, the City entered into
agreements with the Internal Revenue Service ( "IRS "), paying $260,345 to the IRS and defeasing a
portion of the two prior bond offerings at a cost of $1.16 million, so as to preserve their tax - exempt
status for bondholders.
4. By engaging in this conduct, the City violated Sections 17(a)(2) and 17(a)(3) of the
Securities Act.
1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding
on any other person or entity in this or any other proceeding.
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RESPONDENT
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50 The City of South Miami is a municipality located in Miami -Dade County,
Florida. The City of South Miami was incorporated in 1927 and has an estimated population of
approximately 11,000 residents.
BACKGROUND
A. The City Seeks Financing for a Parking Garage Through the FMLC Program
6. Starting in 1997, the City sought financing to develop a public parking garage (the
"Project ") to manage a lack of available parking space in the City's downtown commercial district.
The City issued a request for proposals to develop the Project, which ultimately became a mixed -
use retail and public parking structure to be developed by a for - profit Developer. In March 2002,
the City Attorney, on behalf of the City, negotiated a lease agreement (the "2002 Lease ") with the
Developer, under which the City would be responsible for the cost of construction of the Project,
less the amount required to construct the retail portion of the Project. The City retained full control
over the operation and maintenance of the parking portion of the Project and all parking revenues.
79 The Developer's limited role under the 2002 Lease was critical to the City receiving
the benefits of any tax - exempt financing. Under applicable IRS regulations, the Project could be
financed on a tax- exempt basis only if its use by for - profit businesses, such as the Developer, was
kept to a minimum.
8. The City approved the financing to cover construction of the tax - exempt portion of
the Project through its participation in the FMLC's 2002 bond pool. However, upon receiving a
copy of the 2002 Lease sent by the City's then - Finance Director (the "2002 Finance Director "),
bond counsel for the FMLC identified a potential tax issue raised by the Project's mixed
public /retail nature. During subsequent conference calls between bond counsel and the 2002
Finance Director, bond counsel communicated to the City officials that none of the proceeds of the
bond offering could be used to fund the retail portion of the building. However, subsequent
finance directors were unaware of the substance of these discussions.
90 Thereafter, bond counsel concluded that no tax issues existed concerning the
anticipated borrowing by the City from the FMLC based on, among other things, the City's
representation that no funds from the bond offering would be used to finance the retail portion of
the Project.
10, In May 2002, the City executed a loan agreement (the "2002 Loan Agreement "),
which was reviewed by the City Attorney, and various documents relating to the City's
participation in the FMLC's 2002 bond pool. In the Tax Certificate executed by the 2002 Finance
Director, the City made several material representations that the City would not use funds
borrowed from the FMLC for private use and that the City's Project would be owned and operated
in a manner that complied with IRS regulations for tax - exempt financing. Additionally, the former
3
Mayor executed a 2002 Certificate of Borrower and the 2002 Loan Agreement which stated that
the City would not violate the private use restrictions associated with tax - exempt financing.
110 On May 17, 2002, the FMLC issued $49.8 million of Series 2002A Revenue Bonds
( "2002 Bonds "). The City borrowed $6.5 million of the bond proceeds to finance the Project.
Relying in part on the City's certifications and representations, bond counsel rendered a legal
opinion to bondholders to the effect that the interest on the 2002 Bonds was tax - exempt. Because
the FMLC's bond offering qualified as tax - exempt financing, the City borrowed funds from the
FMLC at advantageous tax- exempt rates.
12. Notwithstanding the City's representations made to the FMLC relating to the 2002
Bonds, in June 2002 -- less than one month after the offering -- the City loaned the Developer $2.5
million of the bond proceeds (the "Developer Loan "). The 2002 City Manager, on behalf of the
City, and the Developer executed this loan without consulting or informing any FMLC
representatives or bond counsel.
B. The City Improperly Revises the Proiect Lease
13. Later that year, based on concerns regarding the City's ability to pay the debt
service on the 2002 Bonds, the City Commission voted to cancel the Project and ceased further
construction of the parking garage and retail space. As part of the settlement of subsequent
litigation filed by the Developer regarding the Project, the City Attorney negotiated a revised lease
with the Developer (the "2UU5 Lease").
14, The 2005 Lease significantly changed several key provisions from the 2002 Lease
regarding the use of the Project. Among other things, the 2005 Lease leased to the Developer the
entire structure of the Project, including the retail space and the parking garage. In contrast, the
2002 Lease only leased the retail space to the Developer, while the City maintained and operated
the parking garage. Additionally, pursuant to the 2005 Lease, the Developer now owed the City
rent payments for the parking garage as well as the retail portion, with the Developer and the City
sharing in the profits of the parking garage portion of the Project.
15. The terms of the 2005 Lease caused the Project to be considered "private business
use" and, therefore, further jeopardized the tax - exempt status of the 2002 Bonds and raised an
additional risk to investors. The City did not inform the FMLC, bond counsel, or any other third
parties to the 2002 Bonds transaction about the changes to the Project. Instead, with the City's
approval, the City Attorney negotiated the 2005 Lease believing there would be no implications for
the 2002 Bonds. The commissioners approved the 2005 Lease and the 2005 City Manager
executed the lease on behalf of the City.
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C. The City Made Misrepresentations and Omissions
in a 2006 Bond Offering with the FMLC
i. The City Seeks Further Pro'e� ct Financing Through the FMLC
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16. By the fall of 2006, the City's Project was still incomplete. The then -City Finance
Director ( "2006 Finance Director ") communicated to the FMLC that the City was still working on
the Project using proceeds from the 2002 Bonds but that the City was nearly out of funds and
required additional funding for completion. The City sought to borrow an additional $5.5 million
through the FMLC's program to continue construction on the Project.
17, In October 2006, the City submitted its application for participation in the
upcoming bond offering ( "2006 Bonds' to the FMLC. From October 2006 through January
2007, among other things, bond counsel reviewed submissions by the City and other municipalities
and also. participated in discussions with the FMLC, the underwriters, the borrowers and their
counsel.
18. In various communications, the City did not inform the FMLC that the 2002 Lease,
which bond counsel previously reviewed and concluded would not impair the tax - exempt status of
the 2002 Bonds, had been modified and that the 2005 Lease impermissibly leased the entire
parking garage to the Developer, including the public and retail portions. Further, the City did not
notify the FMLC that only one month after the 2002 Bonds were issued, the City provided the
Developer with a $2.5 million loan directly from the proceeds of the FMLC's tax- exempt bonds.
ii. The City Made Material Misrepresentations and
Omissions in the FMLC's 2006 Bond Offering
19. Notwithstanding the terms of the City's 2005 Lease as well as the developer loan,
the City misrepresented to the FMLC that its participation in the 2006 bond offering complied with
tax - exempt requirements.
20. The City made misrepresentations to the FMLC in several documents, including the
Loan Agreement, regarding compliance with the tax - exempt status of the loan. In particular, in
January 2007, the 2006 Finance Director executed a Tax Certificate with the FMLC, which made
the following misrepresentations:
• Not more than 10% of the proceeds of the City of South Miami Loan will
be used (directly or indirectly) in a trade or business (or to finance facilities
which are used in a trade or business) carried on by any person other than a
state or local governmental unit. Not more than 5% of the proceeds of the
2 The Official Statement for this bond offering references. "Series 2006" bonds, however, the closing date for
this transaction was on January 9, 2007.
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City of South Miami Loan will be used (directly or indirectly) in trade or
business (or to finance facilities which are used in a trade or business)
carried on by any person other than a state or local governmental unit which
private business use is not related to any governmental use or is
disproportionate to governmental use .. .
• The City reasonably expects that the Project will be owned and operated
throughout the term of the City of South Miami Loan in a manner that
complies with the requirements set forth in Paragraph 23 above. The City
will not change the ownership or use of all or any portion of the Project in a
manner that fails to comply with Paragraph 23 above, unless it receives an
opinion of Bond Counsel that such a change of ownership or use will not
adversely affect the exclusion of interest on the Series 2006 Bonds from
gross income for federal tax purposes.
21. Emnlovees in the Citv'c FinnnrP T)PnartmP_n_t w?rP the nr;mnry rnnrarte fnr thn
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FMLC and bond counsel during the application process. Based on the existence of the 2005 Lease,
which leased the entire parking structure of the Project to the Developer, and the Developer Loan,
the 2006 Finance Director signed an inaccurate 2006 Tax Certificate on behalf of the City.
22. According to the Official Statement for the 2006 Bonds, the FMLC explicitly relied
on the City's representations that the information did not contain any untrue statement of material
fact or omit any material fact necessary to make the statements made, in light of the circumstances,
not misleading. Based on the City's covenants and representations, bond counsel issued a bond
opinion concluding that interest on the 2006 Bonds was exempt from federal income tax.
D. The City Incorrectly Files Annual Certifications with the FMLC
23, From 2003 through 2009, on behalf of the City, various finance directors
incorrectly certified to the FMLC that the City was in compliance with the terms of the loan
agreements. One of those terms was that no events had occurred which affected the tax - exempt
status of the bonds.
246 For example, in 2003, 2004 and 2005, the 2002 Finance Director, and in 2006 the
2006 Finance Director incorrectly certified to the FMLC that the City was in compliance with the
terms of the 2002 Loan Agreement relating to the bonds.
25. In 2008, bond counsel learned of the 2005 Lease. In February 2008, bond counsel
explained in a conference call with the City Attorney and the then - Finance Director ( "2008
Finance Director "), that the 2005 Lease would cause the City's loan and the 2002 and 2006 Bonds
to be considered private activity bonds unless the City amended the 2005 Lease to comply with the
IRS's guidance concerning the management of public facilities by for - profit entities. Nevertheless,
the City never amended the 2005 Lease so as to comply with applicable IRS rules.
26. Despite this failure, and notwithstanding the City's communications with bond
counsel and the FMLC about the tax implications of the 2005 Lease, the then - Finance Director
( "2009 Finance Director "), who replaced the 2008 Finance Director in March 2008, incorrectly
certified that the City was in compliance with the terms of the 2002 Loan Agreement and 2006
Loan Agreement. Although the 2009 Finance Director also attended a subsequent conference call
at which bond counsel reiterated the need to restructure the 2005 Lease to avoid forfeiture of the
tax - exempt status, the 2009 Finance Director incorrectly certified in 2009 that the City was in
compliance with the terms of the loan agreements relating to the bonds.
27. The City's Finance Department experienced significant turnover from 2005 through
2009. The annual certifications required as part of the financing were signed by at least four
different finance directors who were unaware of the implications of the certifications and how the
2005 Lease and Developer Loan affected the tax status of the bonds. The City's finance directors,
while responsible for receiving, signing, and returning the annual compliance certifications, had no
previous experience completing, reviewing, or assessing disclosure requirements or tax issues in
bond offerings and did not receive any training or guidance on the subject.
28. On July 19, 2010, the City submitted a material event notice pursuant to its
contractual commitments with underwriters subject to the requirements of Rule 15c2 -12 of the
Securities Exchange Act of 1934 with the MSRB's Electronic Municipal Market Access
( "EMMA ") system,3 publicly acknowledging a potential adverse impact on the tax - exempt status
of the 2002 and 2007 Bonds. Notwithstanding that bonds of each series had been trading since
their respective offering dates, this was the first time that the City publicly acknowledged any
potential adverse impact on the tax- exempt status of the 2002 and 2006 Bonds.
E. The City Settles with the Internal Revenue Service
29. On July 13, 2010, the City, jointly with the FMLC, sought permission from the IRS
to apply for a settlement under the IRS's Voluntary Compliance Agreement Program ( "VCAP ") in
an attempt to preserve the tax - exempt status of the 2002 and 2006 Bonds. The VCAP program
involves self-reporting of potential problems with tax- exemption issues.
30. On August 17, 2011, the City and the IRS executed two "Closing Agreements"
( "Agreements ") settling the matters at issue. The IRS required the City to pay settlement amounts
totaling $260,325.40. Furthermore, prior to executing the Agreements, the City was required to
establish an irrevocable defeasance escrow for the purpose of defeasing significant portions of the
2002 Bonds and 2006 Bonds and retiring them on their earliest call dates. In order to finance the
defeasance, the City entered into a new taxable bank loan resulting in an additional cost to the City
of $1,164,008.24. As a result of the Agreements, bondholders are not required to include any
interest from the bonds in their gross incomes.
3 In December 2008, Rule 15c2 -12 was amended to designate EMMA as the central repository for ongoing
disclosures by municipal issuers effective July 1, 2009.
7
LEGAL DISCUSSION
31. Municipal securities represent an important part of the financial markets available
to investors. By participating in the FMLC's pooled bond offering in 2006 as a conduit borrower,
the City was able to obtain advantageous tax - exempt rates. Conduit borrowers of municipal
securities have an obligation to ensure that financial information contained in their disclosure
documents provided to issuers is not materially misleading. Proper disclosure allows investors to
understand and evaluate the financial health of the state or local municipality in which they invest.
32. The City, which participated in municipal securities offerings as a conduit borrower
of bond proceeds, is subject to the antifraud provisions of the federal securities laws, such as
Section 17(a) of the Securities Act of 1933. That section prohibits the obtaining of money by
means of any untrue statement of material fact or omitting to state a material fact in the offer or
sale of securities. A fact is material if there is a substantial likelihood that its disclosure would be
considered important by a reasonable investor. Basic Inc. v. Levinson, 485 U.S. 2245 231 -32
(1987). Violations of Sections 17(a)(2) and (3) may be established by showing negligence_ SF.0
v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 1992).
VIOLATIONS
339 As a result of the negligent conduct described above, the City violated Sections
17(a)(2) and 17(a)(3) of the Securities Act. Specifically, the City made material
It isrepreseivauuils and omissions in ine 2006 T ax Certificate and Loan Agreement which certified
that the City was in compliance with the terms of the loan agreements relating to the bonds. The
City's misrepresentations and omissions were material because they directly jeopardized the tax -
exeiiipt status of the municipal bonds, which could have caused investors to pay tax - related
penalties resulting in financial harm to investors. Moreover, numerous investors traded the 2002
and 2006 Bonds at prices that assumed those bonds were tax - exempt. Information regarding the
bonds' tax - exempt status was important to investors in evaluating whether to purchase bonds
through this municipal securities offering.
THE CITY'S REMEDIAL EFFORTS
34. In determining to accept the Offer, the Commission considered the cooperation
afforded the Commission staff and the remedial acts taken by the City, referenced in paragraphs
29 -30.
UNDERTAKINGS
35, The City agrees to retain, at the City's expense and within 120 days of this Order, an
independent third -party consultant, not unacceptable to the staff, for a period of three years, to
conduct annual reviews of the City's policies, procedures, and internal controls regarding: its
disclosures for municipal securities offerings, including: (i) disclosures made in financial
statements; (ii) disclosures made pursuant to continuing disclosure agreements and disclosures
8
regarding credit ratings; (iii) the hiring of internal personnel and external experts for disclosure
functions; (iv) the designation of an individual at the City responsible for ensuring compliance by
the City of such policies, procedures, and internal controls; and (v) the implementation of active and
ongoing training programs for, among.others, the City Attorney(s), the City Manager, the Mayor,
the City Finance Director, and the City Commissioners regarding compliance with disclosure
obligations. After such review, which the City shall require to be completed within 300 days of the
of issuance of this order, the City shall require the independent third -party consultant to submit to
the City, a report making recommendations concerning these policies, procedures, and internal
controls with a view towards assuring compliance with the City's disclosure obligations under the
federal securities laws. The City will submit to the Commission, the findings of the independent
consultant making recommendations for any changes in or improvements to City's policies,
procedures, and practices, and a procedure for implementing such recommended changes. The City
agrees to adopt the recommendations made in such report within 90 days from the date of the report.
36. Within 14 days of the City's adoption of the independent third -party consultant's
recommendations, the City agrees to certify in writing to the Commission staff that the City has
adopted and implemented the recommendations. The certification shall identify the undertaking(s),
provide written evidence of compliance in the form of a narrative, and be supported by exhibits
sufficient to demonstrate compliance. Thereafter, the City agrees to require the independent third -
party consultant to conduct annual reviews in years two and three following the order, to assess
whether the City is complying with its policies, procedures, and internal controls, and whether the
new policies, procedures, and internal controls were effective in achieving their stated purposes.
The Commission staff may make reasonable requests for further evidence of compliance, and
Respondent agrees to provide such evidence. All certifications of compliance and supporting
material shall be submitted to Jason R. Berkowitz, Assistant Regional Director of the Municipal
Securities and Public Pensions Unit in the Miami Regional Office, with a copy to the Office of
Chief Counsel of the Enforcement Division,
37. The City shall require the independent third -party consultant to enter into an
agreement that provides that for the period of engagement and for a period of two years from
completion of the engagement, the third -party independent consultant shall not enter into any
employment, consultant, attorney- client, auditing or other professional relationship with the City,
or any of its present or former affiliates, directors, officers, employees, or agents acting in their
capacity. The agreement will also provide that the independent third -party consultant will
require that any firm with which he /she is affiliated or of which he /she is a member, and any
person engaged to assist the independent third party in performance of his /her duties under this
Order shall not, without prior written consent of the Division of Enforcement, enter into any
employment, consultant, attorney - client, auditing or other professional relationship with the City,
or any of its present or former affiliates, directors, officers, employees, or agents acting in their
capacity as such for the period of the engagement and for a period of two years after the
engagement.
E
IV.
On the basis of the foregoing, Respondent hereby consents to the entry of an Order by the
Commission that:
A. Pursuant to Section 8A of the Securities Act, Respondent City of South Miami shall
cease and desist from committing or causing any violations and any future violations of Sections
17(a)(2) and 17(a)(3) of the Securities Act.
B. Respondent shall comply with the undertakings enumerated in Section III,
paragraphs 35 — 37 above.
V.
By submitting this Offer, Respondent hereby acknowledges his waiver of those rights
specified in Rules 240(c)(4) and (5) f 17 C.F.R. §201.240(c)(4) and (5)] of the Commission's Rules
of Practice. Respondent also hereby waives service of the Order.
1i
Respondent understands and agrees to comply with the terms of 17 C.F.R § 202.5(e),
which provides in part that it is the Commission's policy "not to permit a defendant or
respondent to consent to a judgment or order tnat imposes a sancL1011 WHIM uciiy iiig Ulu
allegations in the complaint or order for proceedings," and "a refusal to admit the allegations is
equivalent to a denial, unless the defendant or respondent - states that he neither admits nor denies
the allegations." As part of Respondent - s agreement to comply with tilt terms of Section
202.5(e), Respondent: (i) will not take any action or make or permit to be made any public
statement denying, directly or indirectly, any finding in the Order or creating the impression that
the Order is without factual basis; (ii) will not make or permit to be made any public statement to
the effect that Respondent does not admit the findings of the Order, or that the Offer contains no
admission of the findings, without also stating that the Respondent does not deny the findings;
and (iii) upon the filing of this Offer of Settlement, Respondent hereby withdraws any papers
previously filed in this proceeding to the extent that they deny, directly or indirectly, any finding
in the Order. If Respondent breaches this agreement, the Division of Enforcement may petition
the Commission to vacate the Order and restore this proceeding to its active docket. Nothing in
this provision affects Respondent's: (i) testimonial obligations; or (ii) right to take legal or
factual positions in litigation or other legal proceedings in which the Commission is not a party.
VII.
Consistent with the provisions of 17 C.F.R. § 202.5(f), Respondent waives any claim of
Double Jeopardy based upon the settlement of this proceeding, including the imposition of any
remedy or civil penalty herein.
10
41
4.
VIII.
Respondent hereby waives any rights under the Equal Access to Justice Act, the Small
Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek
from the United States, or any agency, or any official of the United States acting in his or her
official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses,
or costs expended by Respondent to defend against this action. For these purposes, Respondent
agrees that Respondent is not the prevailing party in this action since the parties have reached a
good faith settlement.
10490
Respondent states that it has read and understands the foregoing Offer, that this Offer is
made voluntarily, and that no promises, offers, threats, or inducements of any kind or nature
whatsoever have been made by the Commission or any member, officer, employee, agent, or
representative of the Commission in consideration of this Offer or otherwis to induce it to submit
to this Offer.
L Day of �a4\ 2 R
I�
r /
STATE OF FLORIDA }
} SS:
COUNTY OF MIAMI -DADE }
The foregoing instrument was ac owledged before me this Q day of , 2013, by
who _is personally known to me or who has oduced a
Florida drivo�'ls license as identification and who did take an oath.
Notary Pub'i
State of Flor'
Commission umber
Commission Expiration
A //.
NKENGA A. PAYNE
MY COMMISSION # EE133362
EXPIRES October 05, 2015
53
11
OR
MIAMI DAILY BUSINESS
Published Daily except Saturday, Sunday and
Legal Holidays
Miami, Miami -Dade County, Florida
STATE OF FLORIDA
COUNTY OF MIAMI -DADE:
Before the undersigned authority personally apj
O.V. FERBEYRE, who on oath says that he or she
VICE PRESIDENT, Legal Notices of the Miami Da
Review f /k/a Miami Review, a daily (except Saturd<
and Legal Holidays) newspaper, published at Miarr
County, Florida; that the attached copy of advertise
being a Legal Advertisement of Notice in the matte
7 U14 T- Ur 0VU-1-171-MiAlVil
PUBLIC HEARING - MAY 21, 2013
in the XXXX Court,
was published in said newspaper in the issues of
05/10/2013
Affiant further says that the said Miami Daily Busine
Review is a newspaper published at Miami in said A
County, Florida and that the said newspaper has
heretofore been continuously published in said Miar
Florida, each day (except Saturday, Sunday and Le
and hac been entemri ac S°rCnnrrl class mH a matt ^cr i
office in Miami in said Miami -Dade County, Florida,
period of one year next preceding the first publicatic
attached copy of advertisement; and affiant further
she has neither paid nor promised any person, firm
any discount, rebate, commission or refund for the
of securing jWs advertisatrreN for publication in the
Sworn to and subscribed before me
10 day of MAY , A.D. 2013
(SEAL)
O.V. FERBEYRE personally known to me
}� %r pke Notary Public State of Florida
Cheryl H Mariner
f c My Commission EE 189528
,` �hOfFt
Expires 07118J2616
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