By Joel Thurtell
Think about this, Californians:
In the early 1990s, a Michigan school district actually sued its attorneys in a CAB deal turned sour.
Amazing!
Pontiac schools won a $15-million-dollar settlement against their bond counsel, the prestigious firm of Miller, Canfield, Paddock & Stone.
For anyone interested in how bond deals are cut, the case was an eye-opener — a one-time-only opportunity to observe how bonds are made.
I call it amazing, because it was unheard of for a school board to attack its law firm — especially an elite firm like Miller, Canfield.
Not that plenty of schools didn’t have cause to question their generous “friends” in the bond industry.
Like the proverbial butcher shop where sausages are manufactured, the creation of Capital Appreciation Bonds is pretty disgusting if you’re not one of the bond underwriters or investors getting rich from it.
It’s not only the profiteering.
It the payola.
You know, the old quid pro quo.
Nobody wants to call it what it is: bribes.
Somehow, school officials forgot they were supposed to get the best deal for the public.
With the underwriters, lawyers and supposedly independent financial advisers, it was all about their profits.
Screw the taxpayer.
The Pontiac case cranked out a lot of sausage. During the process of discovery, school attorneys got loads of normally secret company records of expenses billed to schools.
Expenses like golf outings, lunches, finder’s fees and the like — expenses that should have been eaten by the underwriters that were in some cases billed to the local schools.
I have copies of those records, thanks to discovery in the Pontiac case. I will be sharing these gems here on joelontheroad.
The payola involved more districts than Pontiac. There was plunder where I live, in the Plymouth-Canton district — and other places, too.
The superintendent of Allen Park schools got the boot for looting taxpayers.
Most school officials got away with it.
This 19-year-old Michigan story is relevant now in California.
We know of $20 billion in Capital Appreciation Bonds issued in California since 2000. Interest on those bonds is unknown, but likely around $70 billion.
We know one California district is robbing and will be robbing its taxpayers until 2051. Poway will pay almost $1 billion to borrow $100 million.
Here, reprinted with permission of the Detroit Free Press, is my April 5, 1993 article about the Pontiac lawsuit against Miller, Canfield.
If you are an honest California school official, county treasurer, district attorney or attorney general, you might consider these Michigan newspaper stories as a kind of road map showing the way to graft.
Headline: PONTIAC SCHOOLS SUE LAW FIRM OVER ISSUE
Sub-Head:
Byline: JOEL THURTELL FREE PRESS STAFF WRITER
Pub-Date: 4/5/1993
Memo: ; BUYING NOW, BUT PAYING LATER
Correction:
Text: In the very competitive, but very staid, world of bond sales, the Pontiac
School District has done the unthinkable — dragged its own law firm into
court, charging legal malpractice in a $54-million bond deal.
In a lawsuit, the district accuses Detroit’s prestigious Miller, Canfield,
Paddock and Stone of botching the language of a Feb. 5, 1991, ballot proposal
in which voters authorized the bond sale.
Dennis Pollard, the district’s attorney, said in the lawsuit that the
proposal failed to mention that part of the bond sale proceeds were needed for
a new school bus garage; as a result, the money can’t be used for a garage
and the present one is sinking into a swamp.
Miller, Canfield claims that school officials never told George Stevenson,
the lawyer handling the bonds, about plans for the new garage.
Pontiac claims, too, that Stevenson did not disclose that the law firm
was working for the bond underwriter, Kemper Securities, and the Michigan
Municipal Bond Authority, which had a hand in marketing the bonds.
Richard Barch, a financial adviser active in Michigan bond sales, said it
is not unusual for one law firm to handle different ends of a deal,
representing both the government agency selling the bonds and the
underwriting firm, which buys them wholesale and sells them retail.
“I don’t think it’s that much of a conflict, although it may have the
appearance of it,” Barch said. “It’s sort of a friendly marriage. It’s not
like a divorce.”
The dominant law firm for school bond sales in Michigan, Thrun, Maatsch
and Nordberg of Lansing, has worked for school districts and underwriters at
the same time on 41 CAB deals. Miller, Canfield has done 11 dual CAB
representations. All of the Miller, Canfield deals and all but seven of the
Thrun deals involved Richard Allen’s firms as underwriter.
In a deposition for the Pontiac suit, Miller, Canfield attorney Stevenson
said the bond purchase agreement, “of any of the aspects of underwriter’s
counsel work, would be the one where there is a potential for conflict.”
“The underwriter wants to make a deal, and in their pricing they’re going
to want to do it so they can sell the bonds as efficiently as possible,”
Stevenson said. “That may or may not be in the best interests of the issuer.”
Caption:
Illustration:
Edition: METRO FINAL
Section: NWS
Page: 9A
Keywords: ; SCHOOL; PONTIAC; FINANCE
