LOS ANGELES - The U.S. attorney's office in Boston has asked the Los Angeles County Metropolitan Transportation Authority to turn over records next week of its business dealings with Lazard Freres & Co. and Merrill Lynch & Co.
The subpoena, served Dec. 17 by the Federal Bureau of Investigation on behalf of the U.S. attorney's office in Boston, requests help with the office's investigation into the two investment banking firms formerly associated with investment banker Mark S. Ferber.
Leslie Porter, treasurer of the authority, said the authority is "cooperating fully" and will turn over all documents by the Tuesday deadline requested in the subpoena.
Porter said the subpoena "doesn't suggest [the U.S. attorney's office] is deepening its investigation, but rather is casting a wider net in terms of gathering information."
The subpoena requests information about the Los Angeles County Transportation Commission's relationship with its financial adviser, Lazard Freres, from January of 1989 to June 30, 1993.
The Metropolitan Transportation Authority was created in a 1992 merger between the transportation commission and the Southern California Rapid Transit District.
While the two agencies continue to consolidate, Lazard Freres remains as financial adviser to the commission under a three-year contract that expires in January. Public Financial Management continues as financial adviser to the Rapid Transit District under a contract expiring this month.
Porter said the authority this week will issue requests for proposals for a financial adviser to serve for a two-year period beginning as early as February.
Porter said a key purpose of the subpoena appears to be an effort to shed light on the commission's dealings with Merrill Lynch, lead underwriter on a $500 million negotiated sales-tax revenue bond issue sold in May 1991. Lazard Freres was financial adviser on the issue.
According to Porter, the subpoena requests that the authority provide documentation of any questions "posed in writing or orally" to Lazard Freres and Merrill Lynch "designed to elicit disclosures of business relationships between Lazard and Merrill Lynch or other providers of financial services that might create a conflict of interest for Lazard or Merrill Lynch."
A memo dated Dec. 22 from the Los Angeles office of Lazard Freres sent to Franklin White, chief executive officer of the authority, and Richard Alatorre, a board member, says Ferber "did not provide assistance in any way to the Los Angeles County Transportation Commission during the period in question.
"As you may have seen in several recent Bond Buyer articles," the memo says, the U.S. attorney's office is examining a contractual relationship established in 1990 by Ferber, then head of Lazard Freres' Boston office, and Merrill Lynch "concerning interest rate swaps for municipal issuers."
But Ferber "was never assigned" to the commission account, the memo says. "Furthermore, during the period in question, the [commission] did not engage in an interest rate swap, rate exchange, cap or hedge agreement with Merrill Lynch," the Lazard Freres memo says.
The Lazard Freres memo says Ferber "was responsible for providing consulting advice to Merrill Lynch, and, in return, received an annual consulting fee and shared swap fees with Merrill Lynch on successful joint transactions."
The memo says the U.S. attorney's office has been exploring whether this contract could "have given rise to a conflict of interest with respect to Lazard's financial advisory clients."
The memo says, "We have no evidence to suggest that there was any injury to any of Lazard's financial advisory clients as a result of Mr. Ferber's contractual relationship with Merrill Lynch."
Ferber left Lazard's Boston office in January of 1993, joining First Albany Corp. as a vice chairman. He was fired by First Albany in July.
According to a report released Dec. 16 by the Massachusetts inspector general, Ferber provided Merrill Lynch with confidential advance information while he was financial adviser to the Massachusetts Water Resources Authority.
