WASHINGTON --The Securities and Exchange Commission is asking a federal court judge to deny former Miami budget director Michael Boudreaux's motion to vacate a verdict that found him guilty of securities fraud, contending the former official's arguments are meritless and do not meet the high burden required for such action.
The federal jury, in September, found Boudreaux guilty of misleading investors about interfund transfers that were designed to cover up a growing general fund deficit during Miami's fiscal years 2007 and 2008. Judge Cecilia Altonaga, who sits on the U.S. District Court for the Southern District of Florida in Miami, presided over the trial and sentenced Boudreaux to pay a $15,000 penalty. Miami settled for $1 million in the case. The city had been under a cease-and-desist order stemming from a 2003 fraud case at the time it and Boudreaux were charged with securities fraud.
Boudreaux's most recent motion asked Altonaga for a new trial in addition to his requests to vacate the verdict.
The SEC responded to Boudreaux's motion by asserting the court has already rejected his arguments, which mirror those he brought up during trial, and said that nothing has changed to disturb the court's well-reasoned rulings or meet the high standards necessary for vacating the verdict.
"Ultimately, Boudreaux has identified no fact, legal flaw, or miscarriage of justice that would warrant the extraordinary relief he seeks," the SEC said, adding, "Accordingly, the court should deny the motion in its entirety.'
Boudreaux's lawyer Benedict Kuehne said in his client's motion that the prior cease-and-desist order against Miami is the most important legal issue that prejudiced the trial. He argued that the SEC painted Boudreaux as a repeat violator even though he was not employed with the city when it entered into the prior cease and desist order.
The SEC said that Boudreaux did not cite any actual evidence that the court's decision to allow the jury to consider the prior cease-and-desist order unfairly prejudiced him. The commission instead pointed to the jury instructions during the trial, which told jurors to ignore the order when deciding whether Boudreaux committed the securities law violations and to only consider it for the limited purpose of determining whether Boudreaux had the state of mind or intent necessary to engage in the alleged actions.
Boudreaux engages in rank speculation about the order's effect, essentially assuming the jury ignored the court's limiting instruction, the SEC said. This argument is not only factually baseless, but is contrary to law in this circuit and elsewhere holding that it is assumed juries follow the court's instructions, it said.
The former budget official had also charged that the SEC's inclusion of audit reports from Miami's independent auditor Victor Igwe were irreparably prejudicial and inadmissible hearsay. The SEC said Boudreaux incorrectly cited two cases to advance that argument and added that Igwe's reports are public records.
The SEC also countered a claim from Boudreaux that the jury instructions given at trial inaccurately told jurors that a four-part test for reliance on professional advice was not a complete defense but only a factor for consideration in determining liability. Boudreaux had claimed he relied on auditors.
The commission said the court's instruction accurately summarized the law in the Eleventh Circuit and elsewhere and that Boudreaux never requested the two-part test he said in his motion the court should have given during the trial. Additionally, the jury found Boudreaux didn't meet any of the four parts, making the budget official's claim for a two-part test moot, according to the SEC.
The alleged omissions and misrepresentations Boudreaux and Miami made were contained in: offering documents for three bond transactions in 2009 that totaled $153.5 million; presentations to bond rating agencies; and the city's comprehensive annual financial reports (CAFRs) for fiscal years 2007 and 2008, the SEC found.
The city disclosed the interfund transfers in each of its CAFRs and official statements but, according to the SEC, said the transfers contained money that was not expended and was returned to the general fund. In reality, that money had already been pledged to several ongoing capital projects and some of it was restricted by city law for designated purposes and not the general fund, the SEC said. Thus, the funds that were transferred should not have been considered unallocated, the commission said.
Boudreaux disputed some of those facts in his motion to vacate, saying the SEC never established that he personally made misrepresentations or omissions. He said the commission never showed that his good faith recommendations to replenish the general fund were unlawful or unauthorized masking of Miami's financial crisis. He additionally argued that he never said the money was no longer needed, he never drafted disclosure language, and he was not responsible for financial disclosures to the public.
The SEC responded by saying securities fraud charges do not require proof that he personally made a misrepresentation or omission but instead require only that he engaged in a fraudulent scheme. The same is true for the aiding and abetting charges the jury found him guilty of, according to the SEC.
The record contains sufficient evidence of Boudreaux's negligence and scienter,the SEC added, citing testimony from several other city employees and other evidence the SEC had presented during the trial.
