(Bloomberg News) The U.S. Securities and Exchange Commission may sue Miami over whether the city adequately disclosed financial information when it raised money from investors.

The SEC yesterday told Miami that its staff, after a more than two-year probe, plans to recommend that the agency's commissioners bring civil fraud charges, the Florida city said in a disclosure to investors today.

The city's bond sales have been under investigation since at least 2009, when the SEC sought information about the transfer of money for capital projects to the city's general fund. The transfers made its finances appear stronger as it dealt with flagging property taxes and growing pension obligations.

The SEC has been stepping up investigations of states and cities that raise money from investors, and the agency is planning to recommend ways to improve regulation of the $3.7 trillion municipal bond market.

New Jersey in 2010 settled SEC claims that it misled investors by masking the underfunding of its two biggest pension plans, while San Diego, California settled a similar fraud case.

Miami's disclosure today didn't specify the nature of city's potential wrongdoing, nor did a letter from the SEC that was contained in the filing.

'Respectfully Disagrees'

Andre Zamorano, an attorney with the SEC in Miami, declined to comment. The city said it plans to argue against a lawsuit.

"The city respectfully disagrees with the SEC staff's position and intends to present information to the SEC's commissioners demonstrating that such challenges are not warranted," it said in the filing.

The SEC's investigation followed a report by the city's auditor general, Victor Igwe, citing misleading and inaccurate methods to address its budget shortfalls. In December 2009, the SEC requested documents from the city on the transfer of $26 million of project money into the general fund, which pays for day to day government operations.

Ivan Harris, an attorney representing Miami before the SEC, said he couldn't comment on the investigation and that officials "stand by the accounting for the transactions."