Officials in Massachusetts did not appoint H.C. Wainwright & Co. a co-manager on a recent college authority bond sale despite claims that the firm had assumed the role following the collapse of A. Webster Dougherty & Co.
Last week, Dougherty announced that it had "joined forces" with Wainwright, and with this consolidation, "Dougherty will cease operations as a separate broker-dealer firm."
Kevin Quinn, president of Philadelphia-based Dougherty, told The Bond Buyer on Tuesday that Wainwright "would assume Dougherty's portion" of an $88.9 million revenue bond deal sold by the Massachusetts State College Authority. About a year ago, the authority appointed Dougherty as a co-manager on the transaction, which will close on Wednesday.
Wainwright, however, played no underwriting role on the bond sale, and the bonds it would have received were sold by Lehman Brothers, the deal's lead manager, said Thomas Taylor, an attorney with Ropes and Gray, the underwriter's counsel on the sale.
As a result, Lehman Brothers and co-manager PaineWebber Inc. underwrote the entire issue. The change in the underwriting team came after Dougherty alerted Lehman weeks ago that the firm was undergoing financial difficulties and was about to close, Taylor said.
Last Tuesday, however, Quinn said that financial stress did not force Dougherty to fold. Quinn, who will manage the public finance and financial advisory efforts at Wainwright, did not return telephone calls last week.
Dougherty said last week that it was ceasing operations less than a month after the National Association of Securities Dealers ordered the firm to pay $310,000 in compensatory damages to J.B. Hanauer & Co. for canceling a trade with the New Jersey financial services Company.
Sources with knowledge of the firm say that Dougherty had been under severe financial stress for some time, and that the NASD ruling forced the firm to shut down.
Last week, some regional bankers said Dougherty's listing as an underwriter on the preliminary official statement for the Massachusetts college authority raised disclosure problems. Bankers said investors were misled about what firm was selling the issue, and which firms would be compensated.
Taylor, the issue's underwriter's counsel, disagreed. Neither the issuer nor potential buyers are being misled by the firm's name appearing on the offering statement because executives remaining at Dougherty would direct buyers to contact Lehman during the issue's selling phase, Taylor said.
In fact, Taylor said the deal's legal advisers took the additional step of removing the names of underwriters from other official bond documents in preparation for Dougherty's collapse.
Except for the preliminary official statement cover, "nowhere in the [documents] are any of the underwriters' names listed," Taylor said. "We were careful never to say that Dougherty was an underwriter" in the text of the bond documents.
Additionally, Charles Bennet, head of corporation finance at the NASD, said that Dougherty's name on the preliminary official statement does not merit a disclosure problem because the authority appointed Dougherty to a less senior role on the transaction, a role that may not be material to the issue's completion.
"The touchstone for disclosure is materiality," Bennet said. "If [Dougherty] were the senior manager, then I'd start to get concerned."
