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HomeMy WebLinkAbout1985-03-06 - City Commission Special Meeting MinutesS r4 V r1 ORIDP MAIL REPLY TO: P.O. BOX 25010 TAMARAC. FLORIDA 33320 5811 NORTHWEST 88TH AVENUE TAMARAC, FLORIDA 33321 TELEPHONE (305) 722-5900 NOTICE OF SPECIAL MEETING ilIarc:i 5, 1985 PLEASE BE ADVISED THAT Mayor Kravitz has called a Special Meeting of the City Council to be held on Wednesday, March 6, 1985 at 9:00 A.M. in the West Conference Room of City Hall, 5811 N.W. 88th Avenue The purpose of this meeting is: 1) Discussion and possible action on the effects of the Securities and Exchange Commission's injunction on ESM GROUP, INC. with which the City has repurchase agreements for investment of funds. 2) Discussion and possible action regarding engaging the services of special counsel. L Marilyn ertholf, CMC City Clerk AN EQUAL OPPORTUNITY EMPLOYER POLICY OF NONDISCRIMINATION ON THE BASIS OF HANDICAPPED STATUS CITY OF TAMARAC, FLORIDA SPECIAL CITY COUNCIL MEETING March 6, 1985 Tape 1 CALL TO QMER: Mayor Philip B. Kravitz called the meeting to order on Wednesday, March 6, 1985 at 9:00 A.M. in the West Conference Room of City Hall. RQIL- CALL: kU_,SENT: Mayor Philip B. Kravitz Vice Mayor Sydney M. Stein Councilman Jack Stelzer Councilman Raymond J. Munitz Councilman Allan C. Bernstein EN Elly F. Johnson, City Manager Jon M. Henning, City Attorney Steve Wood, Finance Director Marilyn Bertholf, City Clerk Carol E. Barbuto, Assistant City Clerk Patricia Marcurio, Secretary Mayor Kravitz read the Notice of the Special Meeting into the record noting the purpose of the meeting as: 1. Discussion and possible action on the effects of the Securities and Exchange Commission's injunction on ESM Group, Inc., with which the City has repurchase agreements for investment of funds. 2. Discussion and possible action regarding engaging the services of special counsel. SYNOPSIS OF ACT -ION: 1. The City Attorney gave a report to Council. 2. The City Manager and City Attorney were authorized to negotiate with a law firm to represent the City for an amount not to exceed $10,000. The City Attorney will report the results to Council at the 3/13/85 Council meeting. City Attorney Henning said ESM Group, Inc. is an investment company operating in Broward County that is a recognized firm with legal investments according to the Florida Statutes. He said this company is regulated by the S.E.C. as well as the State Comptroller's Office and was mentioned at Investment Advisory Committee meetings as well. He said these particular types of investments, which are short-term repurchase agreements for premium interest rates, have been practiced for well over a year by Tamarac and other cities. He said there was a problem revealed by a special audit and the Securities and Exchange Commission has issued an injunction which has seized the assets of the investment company. Mr. Henning said the City has received specific receipts of collat- eral guaranteeing the investments. He said there are six contracts totalling 7 million dollars with interest coming due to the City at various times. He said an area of concern is whether this has any impact on the City's rating for the bonds and presently, the City is planning on moving forward with the bond sale at the 3/13/85 Council meeting. He said the problem has two areas of law; first, the securities specialty and, second, bankruptcy specialty. He said the City has been in contact with bond counsel as well as Holland and Knight, which is a recognized bankruptcy expert. 1 3/6/85 /pm Mr. Henning said Mr. Norman of Holland and Knight was City Attorney of Tamarac in the 70's and he is checking to determine if they have any conflicting clients. Steve Wood, Finance Director, said the City relied on recommendations made by Alexander Grant & Co. and, in their financial statements on ESM, dated December, 1984, with an opinion date of January, 1985, which stated, "We have examined the statements of financial condition of ESM Government Securities, Inc., a Florida corporation, wholly -owned subsidiary of ESM Group, Inc., as of 12/31/84. Our examination was made in accordance with generally accepted auditing standards and, accordingly, included such test of the accounting records and other such auditing procedures as we consider necessary in the circumstance. In our opinion, the statements referred to above present fairly the financial condition of ESM Government Securities, Inc. at 12/31/84 in conformity with generally accepted accounting principles applied on a basis consistent without a preceding year." He said this was signed Alexander Grant & Co. and was dated 1/30/85. Mr. Wood said the purpose of financial statements is to inform investors on making investment decisions and the City relied on the financial statements in making these investments. He said they believe that the Comptroller, Gerald Lewis, should have regulated this industry and he urged all the residents of Tamarac and Broward County to contact their legislators and the Governor requesting an investigation of this problem. He said some of the people involved in this are the largest Savings and Loan Associations in the State of Florida, school boards, Ohio State University, Bank of the South, Cities of Tempe, Arizona, Birmingham, Michigan, Tulsa, Oklahoma and Toledo, Ohio. He said he has a listing of all of the creditors that they obtained from Judge Ortez's office in the Exhibits filed regarding this case. C/M Bernstein asked what the dates and amounts of the City's invest- ments were and Dan Saale, Deputy Finance Director, said on 11/30/84 the City entered into a one million dollar contract with ESM for four months and the settlement date on that was 3/29/85 and the rest of the investments were subsequent to that. V/M Stein asked Mr. Wood if there is any idea of what assets are available and Mr. Wood said they do not know. He said the balance sheet for this subsidiary showed that they had three billion dollars in assets as of 12/84. He said the primary was securities purchased under agree- ment to resell and that is disclosed under A & D of the Financial Statements. He said Exhibit A looks like the document that may have been.done after this occurred showing that the financial statements of the preceding years may have misled the investors. Mr. Wood said "Exhibit A" is a P & L Statement and shows the group consolidated and the financial group as a whole, which shows that they really had losses. Mr. wood read a quote from this morning's Wall Street Journal made by General Counsel for Alexander Grant, "It is not clear why the financial problems were not detected during audits by Alexander Grant & Co., which has been ESM's independent auditor at least since 1977. We frankly do not know a whole lot, said James F. Strother, General Counsel for Alexander Grant. We are unaware or without knowledge of what might have led to such problems." Mr. Henning said he spoke with Jim Norman on the telephone and there is a conflicting client with Holland and Knight. He said the City Manager and he would like authorization to negotiate with a prominent law firm. He said the fees discussed with Holland and Knight were on the average of $140.00 per hour with an expert's salary of $275.00 per hour. He said this should be on the next Council agenda for a report; however, in the meantime, an amount of $10,000.00 could be used as a cap for this service. 2 3/5/85 /pm 1* Mayor Kravitz suggested Council make a MOTION that the City Manager be authorized to spend up to $10,000.00 to proceed with negotiations with a report to Council at the 3/13/85 Council meeting. C/M Bernstein so MOVED, SECONDED by V/M Stein. V/M Stein asked if ESM was in bankruptcy and Mr. Henning said there was an injunction by the Securities and Exchange Commission and the nature of the claim is the same type of law as bankruptcy. VOTE: ,ALL VOTED AXE C/M Bernstein asked the City Attorney what Alexander Grant's liabil- ity in this case would be and Mr. Henning said he cannot answer that. C/M Bernstein asked if a City makes an investment relying on the accuracy of a Clean Opinion Audit, does history of such matters indicate that the accounting firm may be held accountable? Mr. Henning said he cannot state what their liability is; however, the Finance Department does rely on the audit to make investments. C/M Bernstein asked what the liability of Bradford Trust would be and Mr. Henning said one of the City's first concerns is to protect the interest in the collateral. City Manager Johnson said this is not the time to discuss possible liability on their part. He said staff will investigate this and report back to Council. Mayor Kravitz noted that this report from the City Attorney should be put on the 3/13/85 Council meeting agenda. City Manager Johnson said the City also relies on the State of Florida and the S.E.C. as far as the banks being regulated and licensed. Mr. Henning noted that the bond sale should be on the 3/13/85 Coun- cil agenda with the bid opening at 11:00 A.M. and the sale at 1:30 P.M. Mayor Kravitz adjourned the meeting at 9:40 A.M. MAYOR ATTEST: - ASSISTANT CITY CLERK This public document was promulgated at a cost of $90.00 or $2.47 per copy to inform the general public and public officers and employees about recent opinions and considerations by the Council of the City of Tamarac. 3 3/6/85 /pm CITY OF TAMAPAC APPROVED AT ME9-5NG OF /o