Posted on Sat, Dec. 24, 2011
Federal probe: Were investors misled when buying bonds for Miami Marlins stadium?
By Charles Rabin
crabin@MiamiHerald.com
CARL JUSTE / MIAMI HERALD STAFF
Experts say it's likely federal securities regulators investigating the financing of the Miami Marlins ballpark are looking to see if bond buyers were misled, or if participants in the deal were improperly influenced. A newly launched federal investigation into public bond sales for the Marlins' $634 million baseball stadium is likely focusing on whether investors were misled about city finances, and whether anyone who championed the wildly unpopular giveaway of public money was improperly influenced, experts say.
The U.S. Securities and Exchange Commission probe into $500 million worth of bonds sold to construct the project is gearing up as Miami wrestles with the possibility of an unforeseen $1.2 million annual tax bill on the four parking garages it built at the site - an element of the SEC probe.
The public antipathy for the stadium project "begs the question, 'Why are they doing it?' " said David Chase, a Fort Lauderdale attorney and former investigator for the SEC. Especially, he said, "when terms of the deal just don't make sense."
In March 2009 a Miami-Dade Commission vote cemented the $634 million plan for the space-age ballpark and four garages that the team argued it needed to remain viable in South Florida. The deal was lopsided in favor of the Marlins, with the city and county covering nearly 80 percent of the costs and the sports team receiving virtually all revenues from the ballpark.
County leaders later acknowledged they had never reviewed the Marlins' books before reaching the agreement, and it was later revealed that the Marlins - who had cried poor - were in a much better financial situation than had been believed. The SEC could be examining whether the county failed to exercise due diligence by not demanding to see the team's financials.
The deal sparked public outrage and generated a failed lawsuit by billionaire car dealer Norman Braman to stop construction.
Earlier this month the SEC sent almost identical subpoenas to Miami and Miami-Dade saying it was looking into the bond sales and demanding thousands of pages of records - everything from information on the Marlins finances, to discussions with top team and league executives, to campaign contributions from the Marlins to government officials.
The SEC declined to comment. But people familiar with federal securities regulations told The Miami Herald it's likely the feds are looking to see if bond buyers were misled because the city didn't disclose that it might have to pay more than $1 million a year in property taxes for the four garages it's building. That failure also could jeopardize the city's ability to meet its debt obligation.
South Miami leaders found out just how painful it can be to botch a bond deal - one that also involved a parking garage.
The Internal Revenue Service took issue with the city's sale, in 2002 and 2006, of two series of tax-exempt bonds for about $12 million to build a garage for a private enterprise. The city also lent the private operator tax-exempt bond money - impermissible under federal tax law.
South Miami was forced to fork over a $285,000 penalty to the IRS last summer. The city also incurred hundreds of thousands more in penalties after being forced to refinance half the loan.
Separately, the SEC is investigating whether buyers were misled - and by whom - when they purchased the bonds, Mayor Philip Stoddard said.
Though Miami's case is different - the city's parking agency, not a private company, will run the garages - a similar penalty could potentially cost the city millions of dollars in fines, refinancing fees and higher interest payments.
As for the county, securities experts say the feds are likely looking into whether anyone who championed the Marlins agreement benefitted personally.
That was what happened in Birmingham, Ala., in a case the SEC made two years ago.
The investigation took place as the city spiraled toward the largest municipal bankruptcy in U.S. history, in large part because of a $4 billion sewer project that went horribly wrong.
Birmingham Mayor Larry Langford was eventually convicted on bribery and corruption charges for taking clothing, a Rolex and other gifts totaling $156,000 as he steered a $7 million county bond issue that was part of the massive project. The SEC worked out a settlement with J.P. Morgan Securities of more than $700 million for making unlawful payments to friends of the county commissioners, as a means to win the bond deal.
Likewise, the SEC could be examining whether any improper gifts or payments were funneled through the underwriters, lawyers or financial advisors on the Marlins stadium deal to government officials who supported it.
"There can't be any quid pro quo,'' said Miami Attorney Mark Raymond, another securities law expert.
The Miami office of the SEC that handled the Birmingham case is the same one now investigating the Marlins deal.
Miami Herald staff writers Martha Brannigan and Patricia Mazzei contributed to this report.
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