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Investment crisis needs more digging
A Times Editorial
Published February 19, 2008
The more scrutiny the state's management of a local government investment fund receives, the more questions are raised about the handling of a crisis that could cost taxpayers millions. There is growing evidence that fund managers kept quiet about troubled investments last year and failed to follow their own guidelines for disclosing them. The state needs to keep digging.
A recently released time line shows that State Board of Administration managers knew they held troubled securities months before they alerted local governments that had money in the investment pool or their bosses: Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum. While the SBA managers began discussing how to restructure more than $1-billion in assets in August, at least two months passed before they acknowledged the seriousness of the situation. Sink is justifiably angry, and Crist and McCollum ought to be equally concerned as this tale continues to unravel.
It turns out there were procedures in place for responding when securities held by the investment pool go south. But the state's money managers did not follow them. The time line shows that the ratings of some investments were downgraded in August, which should have promptly triggered meetings of an investment oversight committee and led to greater transparency. The oversight committee did not receive official notice or meet until October. Why?
There is other evidence of stonewalling. As the SBA managers were dealing with the troubled securities in August, Sink's staff was receiving less than candid responses to their general questions about the state's exposure. Internal SBA e-mails suggest some employees already were trying to insulate themselves from blame. And while an Oct. 31 SBA newsletter to local governments offered the first hint of the problems to come, the seriousness of the situation was downplayed. This has the markings of a cover-up instead of a responsible by-the-book response.
We know what happened next. The downgraded investments eventually were publicly reported, local governments made a run on the investment pool, and SBA executive director Coleman Stipanovich resigned. The investment pool, whose temporary closure forced some local governments to scramble to pay bills, is reopened and the bad investments have been walled off.
To her credit, Sink has been the most aggressive in demanding answers about how this crisis unfolded and insisting on more sophisticated leadership as the state searches for a new executive director for the SBA. An upcoming audit should be enlightening, and there are more questions hanging in the air. Among them: Did some local governments get more warning than others about the bad investments so they could pull their money out while others were in the dark and stuck?
[Last modified February 18, 2008, 20:34:17]
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