SEC Charges Miami Hospital Operator of Misleading Investors



The Securities and Exchange Commission said it charged the operator of the largest hospital in Miami-Dade County with misleading investors about the extent of its deteriorating financial condition prior to a $83 million bond offering.

An SEC investigation found that the Public Health Trust (PHT), which is the governing authority for Jackson Health System, misstated present and future revenues due to breakdowns in a new billing system that inaccurately recorded revenue and patient accounts receivable.

The PHT projected a non-operating loss in the official statement accompanying the bond offering in August 2009, but reported a figure that was more than four times lower than what was ultimately reported at the end of the 2009 fiscal year. The PHT also failed to properly account for an adverse arbitration award, and misrepresented that its financial statements were prepared according to U.S. GAAP.

According to the SEC’s order instituting settled administrative proceedings, the official statement accompanying the bond offering represented that the PHT projected a $56 million non-operating loss for its fiscal year ending September 30, 2009. Several months after the bonds were sold, external auditors discovered problems with the PHT’s patient accounts receivable valuation. This discovery required a large accounting adjustment to the reported net income, and the PHT ultimately reported a non-operating loss of $244 million for fiscal year 2009 – more than four times the projection made to bond investors. The PHT has agreed to settle the SEC’s charges.

“The Public Health Trust fell short in its obligation to maintain adequate accounting systems and controls that ensure truthful disclosures to investors about its financial condition,” said Eric I. Bustillo, director of the SEC’s Miami regional office. “The Public Health Trust used stale numbers to calculate its revenue figures and lacked any reasonable basis for projecting losses that were far less than reality.”
Mark Zehner, deputy chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “Investors must be able to rely on the financial information accompanying municipal bond offerings. We will continue to scrutinize financial statements provided to investors and pursue municipal issuers who aren’t providing accurate information to the public.”

The SEC’s order found that the PHT was aware of the rising level of patient accounts receivable and declining cash-on-hand prior to the bond offering, which caused concern among trustees and executive management. They raised questions about the accounts receivable amounts and collection rates that were used to calculate the PHT’s revenue figures. The $56 million non-operating loss amount included in the bond offering’s official statement was generated by the budget department using stale cash collection numbers amid the known problems with the new billing system. The budget department was not updating its collection rates in a timely fashion due to a lack of adequate communication among departments. Therefore, the PHT lacked a reasonable basis for its loss projection, and the official statement was materially misleading.

To read the full SEC news release click here.


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