TALLAHASSEE, Fla. (AP) _ The State Board of Administration on Monday stuck to its claim that Wall Street investment firms misled the agency into buying risky securities after a newspaper cited public records to dispute that contention.
The St. Petersburg Times reported over the weekend that e-mails and memos show staffers ignored warnings from lawyers and knowingly tried to skirt federal regulations barring the investment of local government funds in risky, mortgage-backed securities.
The Times says the board's former Local Government Investment Pool, now called Florida Prime, would lose $160 million if those securities were sold today.
Board spokesman Dennis MacKee defended the agency in an e-mail.
"Our staff acted in accordance with the advice of our attorneys and within applicable regulations,'' MacKee wrote. “The article speculates on financial losses which have not occurred.''
At issue is $9.5 billion in securities bought for the pool, which was set up to get better returns for cities, counties, school boards and other local agencies than they could get on their own.
In 2007, local governments withdrew billions when some of the investments were downgraded to junk status. That shrank the pool from $31 billion to less than $6 billion.
The board's three trustees, Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum, temporarily froze the pool and hired a private investment firm to help manage it. They later appointed a new executive director, Ash Williams, for the board, which oversees about $140 billion in public investments, most of it in state and local government employee retirement funds.
The Times cited correspondence showing staffers were frustrated by Securities and Exchange Commission regulation 144A, which bars local governments from buying the high risk securities, although they can be purchased by the retirement fund.
In a February 2007 memo, Mike Lombardi, then head of short-term investments for the board, noted similar pools in other states had purchased high risk securities after simply declaring themselves to be a "qualified institutional buyer,'' or QIB.
"Fraught with QIB envy, can you ask our legal staff to revisit Rule 144A?'' Lombardi asked deputy executive director Kevin SigRist.
Lombardi eventually found another law he believed would exempt the pool from the rule.
The Times quoted outside experts who agreed the documents showed staffers had only themselves to blame.
"Florida can't say it got snookered,'' said Wayne State University law professor Peter Henning. "These weren't lambs being led to slaughter. They weren't fooled.''
MacKee, though, cited a letter from a board lawyer, Michael J. Pucillo, to the newspaper that maintained the board did not ignore its own attorneys' advice.
Pucillo wrote that the pool could purchase the securities as a primary or new transaction directly from issuers but not if resold.
"Unfortunately, the sales staff at the various brokerage firms were not correct in their characterization of these transactions,'' Pucillo wrote. "The securities in question had actually been acquired by the brokerage firms and were being resold in a 'secondary' market transaction.''
He added the state is continuing negotiations with the firms and lawsuits remain possible.