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CRESPOGRAM REPORT

MARCH 20, 2014

SHE MIGHT BE GONE, BUT LA VEJA LOCA LEFT A TICKING TIME BOMB AS A PARTING GIFT TO THE TAXPAYERS IN REGALADOLAND
MILLIONS IN CITY MONEY AT RISK

Once again, you can’t make a story like this up.


What would you say if I told you that last year the city tried to save some money and pay their annual installment of the employees pension plan early, and in order to do so, it cost them $119,000 in real dollars because the bonds that they cashed in to cover the costs had lost that amount in the time that the city had owned them?


And then what would you say if you were told that, “The city currently owns approximately $271,000,000 in 5 year callable bonds issued by various Federal Government-sponsored entitles such as FNMA and FHLMC, which, at December 31, 2013, carried approximately $5,000,000 in unrealized losses?”


Well, that’s what Willie Gort, the Chairman of the Miami City Commission was told on March 7th, when he, along with Theodore Guba, the City’s Independent Auditor General received letters from Eli M. Feinberg, the Chairman of the City’s Finance Committee.


And there’s more! 


THE CHICKENS COME HOME TO ROOST

 

How, you ask, could this have happened? Finance Committee member Richard Brodsky, who deserves a Citizen Of The Year award for uncovering this problem and devoting the time it took to unravel and inform his fellow Committee members before becoming the principal person to draft the report that I’ve included below, described it this way at the January 2014 meeting of the Committee where he first revealed this problem. (Pages 6-7)


            “The Finance Department is a cost center, 

            It is not a revenue center.  It should not be

            treated by any elected official, any member

            of the manager’s department, manager’s office,

            us, or anyone in the Finance as a yield chasing

            entity.  It’s not your job.  Your job is to keep the

            money safe and invest it prudently without regard

            to yield as long as it is market appropriate for the

            risk.  Unfortunately the City through June 2013,

            chased yield and it increasingly bought longer

            and longer maturity bonds because they would

            yield more return.  But with the additional return

            came greater risk, specifically the risk that if the

            market rates rose, market interest rose, the risk

            inherent in these bonds all along would eventually;

            in other words the chickens would come home to

            roost.  That occurred in May 2013 when interest

            rates started a major increase, which was

            immediately reflected in millions of dollars of

            unrealized, in other words paper losses in the

            City’s bond portfolio.”


While the practice of investing in these kinds of bonds was started in 2008, it was none other than Janice Larned - La Veja Loca - who was responsible for the decision to go to 5 year bonds with the greater risks described by Brodsky.


And it was not only that she did this, but that she delegated a low level employee in the Finance Department to carry out the bond purchases, and then forbade him to talk with the City’s Financial Advisor.


Here’s that portion of the minutes:


            “Robin and I know this because we talked to

            the guy in the back of the room in the Finance

            Department who actually effectuated the investment

            decisions.  With all due respect to this gentleman

            he’s not equipped to make investment policy for

            this city, but he was left with no one to talk to

            because the previous Finance Manager, excuse

            me, Finance Department Head, according to this

            fellow told him not to talk to the Financial Advisor.


            MR. FEINBERG: Are you saying that the --


            MR. BRODSKY: I’m saying hast Janice Larned

            had according to this fellow told him December

            15, 2012 not to --

           

            MR. FEINBERG: Is this Larry Wempe (phonetic)

       

            MR. BRODSKY:  I don’t want to mention his name

            because --

            MR. FEINBERG: Well, I mentioned it.


            MR. BRODSKY:  I feel so bad for him. By the way if

            he turns out to be the nave of the world then I, then

            I’ve been fooled.  I don’t think so.


            According to him, not in writing, don’t communicate

            with First Southwest.  There were three people in

            the room with that gentleman.  All three of us are

            here.  We all know what happened.”


There’s a whole lot more regarding the fallout from this activity including the failure of the City to properly inform investors and citizens of the impact of these decisions in the City’s annual CAFR Report, and what appears to be a failure of the City’s outside auditors to raise concerns about how all of this was occurring, especially given the kinds of money that these auditors were being paid to look out for these kinds of problems.


At this point however, I’ll leave you, the reader, to go through the documents I’ve included below so you can read for yourself not only what was discovered by Mr. Brodsky, but his analysis and the recommendations that the Finance Committee will make to the City Commission at their next meeting on March 27th.


OLD HABITS DIE HARD - IF EVER THEY DO


It was more or less happenstance that I showed up at this week’s Finance Committee meeting, but it only took me about 30 seconds once the discussion started about the letters and report to the members of the City Commission that the members started discussing that I realized that something extraordinary had happened, and that I was literally the only civilian in the room.


And not only was I the only civilian in the room this week, but I’m the only civilian that has shown up for any Finance Committee meeting this year.


The Miami Herald and El Nuevo Herald actually pays reporters money to cover the City, and none of them seem to have ever shown up at one of these meetings. In fact the minutes include mentions of why wasn’t the news media present when this information was being discussed in January and February.


This is real and serious news, and no one from the news media was there because the Miami Herald is never really eager to dig too deeply into the goings on inside the city for fear that they’ll actually stumble on the kinds of stories that will cause Tomas Regalado problems. He’s their pet politician, and if they don’t do anything else, the Miami Herald protects their pets.


Had the Herald been at any of these meetings, especially at the meeting this week, they would have had a second, and to me, far more important story to write about.


That story involves what I consider to be an effort by top City officials to try and sweep this incident, and the real reasons why it occurred under the rug.


Richard Brodsky to his credit - given the political nature of this committee - makes it clear that he believes that there needs to be a real investigation of how all of this was allowed to happen.


That kind of real investigation would START by asking some embarrassing questions such as how did Janet Larned get hired?


Why was she allowed to remain the City’s Chief Financial Officer after she started displaying the erratic, and professionally questionable behavior that I wrote about in 2012, including her hiring her business partner’s brother as the City’s  Finance Director even though he did not have a CPA, and was clearly unqualified for the position? 


Here are just a few of the stories that I wrote about Janice Larned and her activities as the City’s Chief Financial Officer, any of which should have raised serious red flags, and collectively all of which would have caused her to be fired in just about any competently managed city long before she finally was: HERE, HERE, HERE, HERE, HERE.


The bigger question - and a very serious question about the way in which decisions have, and continue to be made by the Regalado administration - is why was she hired?  And after she was hired, and after it became apparent that she was a loose cannon, who decided that she was worth the risk to keep on?


Was it because someone(s) believed she could be manipulated into going along with the deal flow that was obviously in place when it came to the companies buying the bonds and the accountants that don’t seem to have been accounting.


Again, let me quote from the minutes of the January Finance Committee minutes where Mr. Brodsky details his first recommendation to his fellow board members: (Page 27)


            “The first is that we should ask the City

            Independent Auditor General to investigate

            how we got here, including the performance

            of the City’s independent public accountants,

            the bond broker servicing the City, and the

            City’s Financial Advisors.  In my judgment until

            we know how we got here we can’t fully learn

            from the mistakes.”


Brodsky is absolutely right. If you don’t know how you got to a bad place, the chances are that if it was done on purpose the first time, then it can be done again a second, third or fourth time.


And here is where the City Officials have decided to circle the wagons. At the meeting I attended the mantra by the representatives of both the City’s Finance Department and the Independent Auditor was that “They didn’t want to look backwards.  They wanted to look forward.”


The Auditor General, Theodore Guba, voiced a very clear desire that he didn’t want to spend time looking at what had happened, but to look forward.


Now, I understand and appreciate Guba’s problems in conducting these kinds of investigations - he has yet to finalize his investigation of Luis Cabrera and Juan Pascal and the allegations of nepotism related to the Parks and Recreation Department hiring Cabrera’s half-brother and his wife only months after their arrival from Cuba, in large part because Cabrera and Pascal have lawyered up and refused to cooperate.


While the title of Independent Auditor General sounds like a powerful position, in fact he has little if any real power, and certainly no subpoena power or ability to hire independent lawyers to assist him in any investigation.  He is a toothless Tiger, and that’s the way that the Mayor and the City Commission want him to be.


Additionally, while I think that Danny Alfonso is trying to change things, and seems to have reached out to try and hire competent people to fill the top positions in the Finance Department, this is still the City of Miami, or the Banana Republic of Regaladoland, and the level and culture of corruption has become so ingrained in the city that while the Mayor and Commissioners will pay lip service to an investigation, in reality none of them, if they have their way - as they’ve been able to do in the past -will do all they can to short circuit or derail any serious investigation that actually follow the money all the way to the bank.


What no one should ever forget is that every single step of the way all of the people and companies cited by Brodsky made money from the City for doing what they did, and a search of campaign finance records will reveal that many of these same people made sure to share a portion of those payments in the form of campaign contributions to the Mayor and a handful of Commissioners.


Campaign contributions are but the most obvious way in which politicians get rewarded for making sure that the folks in the deal flow stay in the deal flow.


This time, any efforts to sweep this under the rug cannot be allowed to happen.  Responsible people have to step up and DEMAND that a real investigation takes place.


For that to happen, a real investigation needs to be conducted by an outside agency - and most certainly NOT by the Miami-Dade State Attorney who had repeatedly demonstrated her willingness to allow Miami City officials including Mayor Tomas Regalado and Commissioner Willie Gort to evade criminal prosecution for their behavior.


Either the FDLE needs to be bought in, or a real independent committee with subpoena power and the finances to hire their own lawyers needs to investigate this mess.


Since the odds of the Miami City Commission approving, and the Mayor signing a Resolution creating such a committee are about on par with Fidel Castro declaring on his death bed that he was all wrong and that the Cubans in Miami were right, then it’s up to someone(s) trying to get the FDLE involved, with the additional effort of trying to get the Governor and the Florida Attorney General to go along with the appointment of a Special Prosecutor.


Trust me when I tell you that after 4 years of digging around in the City’s garbage, what Richard Brodsky dug up in this investigation is but the tip of the iceberg into what has been going on with the City’s finances, not only during the Regalado years but during the Diaz years as well.


It’s Miami, Bitches!


THE DOCUMENTS

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