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10To: Cc: From: Date: 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. 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 SEC could, theoretically, refuse, it is more likely that the SEC will accept the offer and issue the order. Attached are: 1. Proposed Resolution; and 2. City's Offer of Settlement RESOLUTION NO. ______ _ 2 3 A Resolution of the Mayor and City Commission of the City of South Miami, 4 Florida, authorizing the City Manager to execute an Offer of Settlement with 5 the United States Securities and Exchange Commission concerning certain 6 parking garage related securities law violations and authorizing necessary 7 actions for implementation of the Order accepting the Offer of Settlement. 8 9 Whereas, the City of South Miami ("the City") caused to be issued certain bonds and 10 entered into a loan (collectively, the "Indebtedness") for the construction of the City's parking 11 garage, all as more particularly described in the excepts of the memorandum of Squire, Sanders & 12 Dempsey (US) LLP, dated May 11, 2011 presented at this meeting (the "SSD Memorandum"); 13 and 14 Whereas, the Indebtedness was intended to be tax-exempt; and 15 16 Whereas, as described in the SSD Memorandum, as a result of certain actions, the City 17 approached the United States Securities and Exchange Commission ("Commission"); and 18 19 Whereas, in anticipation of the Commission's initiation of cease-and-desist proceedings 20 against the City, the City and the Commission have been negotiating to settle the allegations of 21 certain securities law violations; and 22 23 Whereas, the Offer of Settlement contains the terms negotiated with the representatives of 24 the Commission, and the Commission's acceptance of this Offer of Settlement will resolve and 25 conclude the investigation conducted by the Commission. 26 27 NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND CITY 28 COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA: 29 30 Section 1. The City Manager is hereby authorized to execute the Offer of Settlement 31 of City of South Miami, Florida, attached hereto, with the United States Securities and Exchange 32 Commission in connection with the investigation conducted by the Commission. In this regard, 33 the City Manager is hereby authorized to undertake such actions as he may deem necessary and 34 advisable, including the execution of such documentation as may be required by the Commission, 35 in order to carry out the foregoing and to implement the provisions of this Resolution. 36 37 Section 3. Severability. If any section clause, sentence, or phrase of this resolution is for 38 any reason held invalid or unconstitutional by a court of competent jurisdiction, the holding shall 39 not affect the validity of the remaining portions of this resolution. 40 41 Section 4. Effective Date. This resolution shall become effective immediately upon 42 adoption by vote of the City Commission. 43 44 45 46 PASSED AND ADOPTED this __ day of _____ , 2013. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 ATTEST: CITY CLERK READ AND APPROVED AS TO FORM, LANGUAGE, LEGALITY AND EXECUTION THEREOF CITY ATTORNEY APPROVED: MAYOR COMMISSION VOTE: Mayor Stoddard: Vice Mayor Liebman: Commissioner Newman: Commissioner Harris: Commissioner Welsh: 2 3 4 5 6 Excerpts from May 11, 2011 Squire Sanders Memorandum 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" and 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 of2008, parking rates were implemented. 30 In March of2008, 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 payoff 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 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 $5,415,000. 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 tum 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 flom 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 15 immediately upon making the Developer Loan. The private activity did not arise at the time of 16 the Developer Agreement. It did not occur until parking rates were first charged at the Garage 17 ProjeCt in January of2008. UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION ADMINISTRATIVE PROCEEDING File No. In the Matter of CITY OF SOUTH MIAMI, FLORIDA Respondent. OFFER OF SETTLEMENT OF CITY OF SOUTH MIAMI, FLORIDA I. City of South Miami, Florida ("City" or "Respondent"), pursuant to Rule 240(a) of the Rules of Practice ofthe Securities and Exchange Commission ("Commission") [17 C.P .R. § 20 1.240( 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 ofthe Securities Act of 1933 ("Securities Act"). n. 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.P.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 party prior t() a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et ~., and without admitting or denying the findings contained in the Order, except as to the Commission's jurisdiction over it and the subject matter ofthese proceedings, which are admitted, consents to the entry of an Order by the Commission containing the following findings 1 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 City's participation 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 Official 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 ofthe 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 ofthe 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. I 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. 2 RESPONDENT 5. 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. 7. 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 ofthe 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 ofthe building. However, subsequent finance directors were unaware of the substance of these discussions. 9. 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. 11. 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 ofthe 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 Project 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 "2005 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 ofthe 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. 4 C. The City Made Misrepresentations and Omissions in a 2006 Bond Offering with the FMLC i. The City Seeks Further Project Financing Through the FMLC 16. By the fall of2006, 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,,2) 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 ofthe 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. 5 ,,, 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 ofthe 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. Employees in the City's Finance Department were the primary contacts for the FMLC and ·bond counsel during the application process. Based on the existence ofthe 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 ofthe 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 tenus ofthe loan agreements. One of those terms was that no events had occurred which affected the tax-exempt status ofthe bonds. 24. 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. 6 ,,, 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 ofthe 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 [mance directors who were unaware ofthe 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 ofthe 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 ("YCAP") in an attempt to preserve the tax-exempt status of the 2002 and 2006 Bonds. The YCAP 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. 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. 224, 231-32 (1987). Violations of Sections 17(a)(2) and (3) may be established by showing negligence. SEC v. Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 1992). VIOLATIONS 33. As a result of the negligent conduct described above, the City violated Sections 17(a)(2) and 17(a)(3) ofthe Securities Act. Specifically, the City made material misrepresentations and omissions in the 2006 Tax Certificate and Loan Agreement which certified that the City was in compliance with the terms ofthe loan agreements relating to the bonds. The City's misrepresentations and omissions were material because they directly jeopardized the tax- exempt status ofthe 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 ofthe 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 ofthe 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. 9 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) [17 C.F.R. §201.240(c)(4) and (5)] ofthe Commission's Rules of Practice. Respondent also hereby waives service of the Order. VI. 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 that imposes a sanction while denying the 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 the 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 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 ofthe 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. IX. 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 otherwise to induce it to submit to this Offer. __ Dayof __ _ STATE OF FLORIDA COUNTY OF MIAMI-DADE } } } ss: City of South Miami The foregoing instrument was acknowledged before me this _day of ,2013, by ___________ " who _is personally known to me or _who has produced a Florida driver's license as identification and who did take an oath. Notary Public State of Florida Commission Number Commission Expiration II MIAMI DAILY BUSINESS REVIEW 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 appeared O_V. FERBEYRE, who on oath says that he or she is the VICE PRESIDENT, Legal Notices of the Miami Daily Business Review flk/a Miami Review, a daily (except Saturday, Sunday and Legal Holidays) newspaper, published at Miami in Miami-Dade County, Florida; that the attached copy of advertisement, being a Legal Advertisement of Notice in the matter of CITY OF SOUTH MIAMI 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 Business Review is a newspaper published at Miami in said Miami-Dade County, Florida and that the said newspaper has heretofore been continuously published in said Miami-Dade County, Florida, each day (except Saturday, Sunday and Legal Holidays) and has been entered as second class mail matter at the post office in Miami in said Miami-Dade County, Florida, for a period of one year next preceding the first publication of the attached copy of advertisement; and affiant further says that he or she has neither paid nor promised any person, firm or corporation any discount, rebate, commission or refund for the purpose of secu:~~ advertis for publication in the said newsp7;et Sworn to and subscribed before me this 10 day of MAY ,A.D. 2013 O.V. FERBEYRE personally known to me Notary PubliC State of Florida Cheryl H Marmer My Commission EE 189528 Expires 07118/2016 Ages 1'/2 -12 June 17!!l -August 9th 9:00 am -3:30 pm Early Arrival & Extended Day Available Summer Montessori Classes Pre-and Post-Camp Fun Weeks Available We have fuo, rain or shine, in our 8,000 sq. ft. air-conditioned gymnasium. Preschool 6050 SW 57l ' Avenue Toddler and Preschool 17800 Old Cuiler Road Toddler and Preschool 14400 Old Cutler Road Elementarv 14850 SW 67" Avenue Sports Track with Coach Rudy Fernandez • Grades 1-6 Flag Football, Soccer. Basketball, and Daily Swimming (305) 665-6274 Zoofari Summer Camp: for children ages 4-13 Hours: 9:00 AM -4:00 PM Extended care available until 5:30 PM Morning and afternoon snacks provided. SE SUNDAY, MAY 12, 2013 I 33SE CITY OF SOUTH MIAMI COURTESY NOTICE NOTICE IS HEREBY given that Ihe City Commission of the City of South Miami, Florida will conduct Public Hearing(s) at its regular City Commission meeting scheduled for Tuesday, May 21, 2013, beginning at 7:00 p.m., in the City Commission Chambers, 6130 Sunset Drive, to consider the following item(s): ,/ A Resolution authorizing the City Manager to execute an Offer of settlemen~ i 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 including hiring a consultant for more than one year. An Ordinance amending Section 20-3.3(CII61 Permitted Use Schedule, of the land Development Code; providing for additional ground floor and third floor uses for certain properties in the "SR -Specialty Retail" zoning district. An Ordinance providing for the City of South Miami to approve the donation of land related to the Murray park Pool project for right of way dedication, by conveying a 5 foot strip of land approximately 1 ,843 square feet more or less of swale area along of right of way of SW 68 Street and SW 58 Place SW 57 Avenue in South Miami, Florida. ALL interested parties are invited to attend and will be heard. For further information, please contact the City Clerk's Office at: 305-663-6340. Maria M. Menendez, CMC City Clerk Pursuant to Ronda Statutes 286.0105, the City hereby advises the public that if a person decides to appeal any decision made by this Board, Agency or Commission with respect to any matter considered at its meeting or hearing, he or she will need a record of the proceedings, and that for such purpose, affected person may need to ensure that a verbatim record of the proceedings is made which record includes the testimony and evidence upon which the appeal is to be based.