Theft at the Public Till
objective advice and they have a financial incentive -to skew the business to a particular party? That’s troubling, and if I were a client, I’d have a fit.” Another Lazard Freres story sheds much light on how Wall Street wins business from state and local governments around the country. One of Lazard’s crowning achievement’s in the municipal bond world was winning the managing-underwriter mandate for the December 1992 $1.8 billion offering of New Jersey general-obligation bonds. That deal brought Lazard some $10 million in fees and profits and propelled it to the top spot in New Jersey’s hotly contested underwriting race. The deal began the way that mu- nicipal bond offerings often do, with an underwriter broaching the idea with state officials. In the fall of 1990, Lazard proposed the idea to the treasurer’s office in New Jersey. But state treasurer Douglas Berman opposed the plan. Even though the bonds would make money available for capital spend- ing in the short term, Mr. Berman believed the plan was far too burdensome because it would increase the state’s debt by some $650 million in the long term. Mr. Berman testified against the Lazard proposal in budget hearings before the New Jersey state legislature in 1991. After Mr. Berman resigned as treasurer in January 1992, Gov. Florio appointed Sam Crane, his chief-of- staff’s brother-in-law, to the job. Mr. Crane, a former budget director for the New Jersey legislature, didn’t oppose the plan. As if the fees Lazard earned from its management of the underwriting weren’t enough, state treasury officials were directed by Robert DeCotiis, Gov. Florio’s chief counsel, to let Lazard temporarily reinvest the $1.8 billion in proceeds in U.S. Treasury securities, according to people familiar with the matter. It was an odd break with past practice. New Jersey’s Division of Investment, which manages a $44 billion portfolio, had always reinvested bond proceeds itself through a competitive bidding process. In this case, Roland Machold, the director of the Division of Investment, and Robert Lurie, New Jersey’s director of public finance, both wrote memos to Mr. Crane recommending that the proceeds from this offering be in- vested through a competitive bidding process, rather than giving Lazard a monopoly. They argued that New Jersey would otherwise have no way of knowing whether it was getting the best possible return. Their argument
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