State takes on securities brokers

Mar 7, 2008

Orlando Sentinel--Mar. 7, 2008
Aaron Deslatte
Tallahassee Bureau

Chief Financial Officer Alex Sink asked lawmakers Thursday to take stronger steps to help local governments that are on the hook for money the state invested last year in shaky, mortgage-backed securities.

Sink released a 10-point plan to deal with the issues that caused a run last fall on the Local Government Investment Pool managed by the State Board of Administration.

No. 1 on her list: She wants the law firm retained by the state, Fort Lauderdale-based Berger Singerman, to see if the state can sue the brokers that sold the securities.

The SBA bought $2.75billion in asset-backed securities over the last year that were later downgraded or went into default — in several instances within 60 days of the purchase.

Lehman Brothers sold roughly half those securities to Florida, followed by Credit Suisse First Boston, which sold $1billion worth of the paper.

Word of the problematic paper prompted panicky local governments to withdraw $13.5billion, forcing the state to freeze access to the fund. More than $1.5billion remains frozen.

"Were in fact these companies that sold us the investments trying to dump assets?" Sink said. "We need to get on with those questions."

Since last fall’s withdrawals, other issues have emerged, including disclosure by the Orlando Sentinel of an internal audit warning of problems thatwere largely ignored by SBA managers and never brought to the attention of Sink, Attorney General Bill McCollum and Gov. Charlie Crist, who collectively oversee the SBA.

Beyond reviewing legal options, Sink wants lawmakers to help restore investor confidence in the pool by restructuring its oversight and putting into law new ethics and disclosure requirements for the state’s financial advisers.

She also wants to ask voters to expand the SBA trustees by two seats, to be filled by retired financial experts.

House Republicans, meanwhile, want to restrict the agency’s ability to use interest income and reserves as it wishes.

"The more input we have, the better," said state Rep. Carl Domino, R-Jupiter, who is heading the House’s investigation.

Some of Sink’s proposals are contained in legislation House and Senate Democrats filed this week. The bills also would require Senate confirmation of the SBA’s executive director.

The SBA’s acting chief said Thursday that the agency already has made many of the changes.

"Frankly, nothing in there was really a surprise to me," said Bob Milligan, whom Sink tapped for the job late last year. "Many of them are already under way and have been under way for some time."