Wisconsin reports no conflicts of interest in business with Lazard Freres, First Albany.

CHICAGO - Wisconsin said yesterday that after a recent review it found no conflicts of interest in its three-year dealings with Lazard Freres & Co. and First Albany Corp. as its financial advisers.

"We found that as far as the state of Wisconsin is concerned, there appears there is no reason to believe there was a conflict of interest or anything improper, period," said P. Nicholas Hurtgen, deputy secretary of the state's Department of Administration.

In a letter to Ken Gibbs, who was the state's key contact, first with Lazard Freres and then with First Albany, the state exonerated the two firms, saying "there was no undisclosed conflict of interest or appearance of impropriety" in their dealings with the state.

Frank Hoadley, Wisconsin's capital finance director, said that from 1990 until early this year Lazard Freres and Gibbs, who was then a senior vice president of the firm. served as financial adviser on specific state bond issues.

Following the departure of Gibbs and others to First Albany in February, and following a request for proposals process, First Albany was selected along with three other firms in July to be the state's financial advisers for the next year, Hoadley said.

He said the letter to Gibbs, now a senior vice president at First Albany, confirms the state's selection of First Albany to act as financial adviser for all of its negotiated bond deals for the next year, with the option to extend the contract for another year.

However, the contract for First Albany, as well as for the other two financial advisers, O'Brien Partners and Public Financial Management, will contain a new provision on conflicts of interest, Hoadley said. That provision requires the firms to certify that they agree to inform the state "of all relationships and business agreements from which the adviser receives money or in-kind benefits" that may conflict with the state's interests.

A spokesman for First Albany said, "Such provisions are standard in financial advisory contracts, and the language in Wisconsin seems appropriate to the state's purpose."

The spokesman also said the firm is "very pleased" that First Albany has been confirmed as a financial adviser for the state.

Trina Hardiman, a spokeswoman for Lazard Freres, also said the firm was "pleased" with the state's findings.

Wisconsin began its review of its relationship with Lazard Freres and First Albany after allegations of impropriety became public about Lazard Freres' dealings with the Massachusetts Water Resources Authority. In July, problems with the firms surfaced when officials at the authority learned that Mark Ferber, its financial adviser and a former partner at Lazard Freres who had joined First Albany in February, had maintained a fee-splitting relationship with Merrill Lynch & Co., one of the authority's underwriters.

The relationship, which involved swap transactions the two firms handled, raised questions about Ferber's ability to offer the authority unbiased advice while accepting money from a bond underwriter.

Wisconsin, however, did find some fault with the firms' relationships with the Massachusetts Authority, whose officials were contacted by Wisconsin for the review. The letter to Gibbs states, "There are indications there may have been a mistake in judgment by others in not disclosing potential conflicts of interest in a financial advisory relationship."

The letter further states that "based on all the information we have reviewed, to the best of our knowledge it does not appear that any law or regulation was broken by either firm or the individuals involved."

Hoadley said, "We're acknowledging that there is probably a problem at the Massachusetts Water Resources Authority. But we can't see that any firm or individual violated any law or rule."

Deputy secretary Hurtgen said the conclusions of Wisconsin's review and the decision to confirm First Albany as a financial adviser were unanimously reached on the part of himself, Hoadley, and the general counsel for the Department of Administration, who worked on the review.

Hoadley said the review involved sworn statements by Gibbs concerning Lazard Freres' relationship with Merrill Lynch. He said Michael Del-Guidice, a partner at Lazard Freres and Michael Lindberg, general counsel at First Albany, also verified statements made by Gibbs. Copies of the statements and of the firms' responses were not available yesterday.

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