UPDATED (11:00 p.m.)—Members of the Baltimore County Council were briefed in 2007 about a bad investment that , according to a letter released by Baltimore County officials.
The six-page letter from County Administrative Officer Fred Homan, first reported Tuesday by the Baltimore Sun, is remarkably similar to a three-page memo given to members of the Baltimore County Council on April 16. (Read both the 2007 letter and April 16 briefing memo.)
The letter also settles questions about whether or not council members were briefed in the months after the investment failed in 2007.
Don Mohler, chief of staff to County Executive Kevin Kamenetz released the letter to Patch on Wednesday morning.
"The real issue is that the letter clearly shows there was detailed communication with the council five years ago which is what I told you last week—you chose not to believe me and preferred to suggest that the (county executive) was a liar in your article—letter clearly shows that his memory was quite accurate," Mohler wrote in an email Wednesday morning.
In the Nov. 26, 2007 memo, Homan explains that the county invested $21 million of general government funds into a mortgage-backed security known as Mainsail II LLC on July 31, 2007. By Aug. 24 of that year it became clear to the county that the fund, which was backed by subprime mortgages, was in trouble and would not pay off as expected.
"A declining housing market, in combination with homeowners with poor credit histories or heavy debt loads, caused defaults to rise significantly, reaching almost 14 percent of U.S. subprime mortgages during the first quarter of 2007," Homan wrote in November 2007.
The full value of the $21.3 million bad investment was later sold to the Police, Fire and Widows' Pension Fund—an account that currently has assets of $129 million to support 392 beneficiaries. Homan made the determination to sell the bad investment, according to the memo.
with county officials including Keith Dorsey, the county budget director, to discuss hiring outside counsel to pursue a lawsuit against Merrill Lynch. The county bought the Mainsail II investment from Merrill Lynch, according to county records.
Mohler has repeatedly declined to discuss the issue even as recently as in an April 21 interview. During that interview, he also declined to ask Kamenetz, on behalf of Patch, about whether or not he was briefed on the issue when he served on the council.
During that same interview, Mohler declined to release any documents related to briefings on the investment dating to the time the county discovered it.
On Sunday, Kamenetz told WBAL TV that he and the on the issue. The county executive served as chair of the County Council in 2008 when the council was asked to approve changes to county investment regulations that would prohibit investments like Mainsail II again.
On Monday, two former councilmembers—Joseph Bartenfelder and Bryan McIntire—said on the issue and could not recall being told of a $21 million loss.
Councilmen Ken Oliver and John Olszewski Sr. were also on the council in 2007 and 2008. Neither returned calls Monday from a reporter seeking comment.
Minutes of the January 2008 County Council work session do not show that the $21 million loss was discussed publicly. Notes prepared by the county auditor's office do not reference Homan's 2007 memo to the council even though a copy was provided to that office at the time.
The county has not yet responded to multiple requests under the Maryland Public Information Act for related documents.
http://www.scribd.com/bryan_sears_4/d/91276382-Mainsail2007 And here is Sears qute: Bartenfelder said the discussion of the requested changes five years ago was very general. "There was nothing specific and no mention of a $21 million loss," said Bartenfelder. "They were just saying there had to be changes because of a loss but how much was lost was never mentioned." Hmmm, seems like Joe was missing in action, or just growing sour grapes?
Also, if the investment was permissible, and the county fell victim to the same market downturns that hit the entire economy, why was the employee that made the investment secretly fired, as I have heard? Is that the case? Calm Down, could you please comment?
Also, Homan references purchasing the product "from" Merrill Lynch. Mainsail isn't a Lynch product like one of their high yield value funds. Merrill is simply the agent executing the transaction at the client's direction They purchased Mainsail II "through" Merrill. Someone at the county level requested the product. Simple question - who?
In other words JD, it would be similar to me wanting to buy shares of my friend's investment fund. I would then have to call my broker and explain to him/her that this is what I wanted to do and he/she would then execute the purchase on my behalf?
I believe the issue at hand is that Merrill sold a investment (solicited or otherwise) that had underlying exposure to an asset class (sub-prime) that Merrill was allegedly aware had potential issue EVEN IF the exposure was not via Merrill products. This may come down to clarification of whether Merrill was a fiduciary in this transaction or simply an executing agent. I invite further clarification if I have misspoken.
(An aside - No Series 7 would promise returns since the courts regularly uphold the inherent risk of investing thus providing brokers and dealers all liability coverage they need. Successfully suing a broker because you picked a dog would cripple financial services and rip the heart out of the largest functionally successful industry in our economy.) Homan seems to be saying a Merrill rep came in and pitched this one product to county with false promises. I call B.S. and certain Lynch would be happy to confront the charge in court. But let's say this is route BaCo is going. Homan undercuts any legal claim by himself stating the product carried a sufficient rating from two independent rating agencies at the time of purchase. So where is the fraud on behalf of the broker? BaCo is claiming he knew the downgrade was coming? B.S. If that's the case he would have sold them a short on commercial paper and had his face on the cover of the F.T. In a way I hope they press the suit, Smith and his staff along with the past council and the current will have to come clean in discovery under the threat of perjury. Ego works well in smallville politics but don't think Wall Street is intimidated because you're some local somebody.
He was a substandard Marine. He was being transferred... No. You said he was transferred because he was in danger. I said, "grave danger?" and you said, "Is there any other kind"... we can read it... I know what I said! Then why the two orders? Men can do things on their own. But your men never did. Your men obey orders. So Santiago wasn't in danger, right? You snotty little bastard. By the way...I think Burgundy would prefer if you called him Colonel or Sir. For his work for KK on these boards he thinks he has earned it.
Office, which you meatheads should know is the Legislative Branch.
Homan has accused Merrill Lynch of fraud. Simply provide a name to back this up and it all goes away. Bu the by, you are aware that unless you are using an IP Masking service like Hide My IP or Proxy Server we know who you are right?
There was quite a lot of rhetoric in that situation also. Let's tally up the totals. Two council members claimed they were not entirely briefed, and two say nothing. That leaves three who were not there at the time. Now as far as the letter, I did not hear copies were disseminated to the council members nor do the minutes reflect any documentation or account of the event, not that $21 million would require such an effort. Now you have a FOIA involved and I think the LAW requires a response. You can always take the fifth. It seems apropos these days.