CHICAGO -- Francis Gaul, the treasurer of Cuyahoga County, Ohio, is willing to take responsibility for the disintegration of his much-touted local government investment program.

"It happened on my watch," Gaul said in a telephone interview yesterday. "The buck stops here."

However, he was quick to add that other forces were also at work in the termination of the Secured Assets Fund Earnings program that had been directed by his office.

One was the abrupt turnabout of the bond market -- the worst, Gaul said, in 65 or so years. Then, he said, there were his political enemies trying to discredit the program among its 75 local government investors, including school districts, cities, villages, and other counties.

Gaul, who was defeated Nov. 8 in his bid for a congressional seat from Ohio, said rumors were being spread that the investment program was illegal, prompting "a run on the bank" by several of the government investors.

The combination of the two situalions turned a problem into a crisis, Gaul said.

Once the Cleveland Plain Dealer began running stories about the SAFE program's paper losses and investment techniques, the program's fate was sealed.

Last month, county commissioners shut down the program, which at one time contained $1.1 billion of public funds, after learning about some of its investment strategies, including reverse repurchase agreements, and in the face of huge paper losses.

While principal was returned to the 75 local government investors, the county, which was the biggest investor in the program, was left with a large, devalued portfolio of various fixed4ncome securities. The county has already realized $114 million of losses from selling portions of the portfolio and is contemplating using proceeds from a new bond issue to restructure the remainder of the portfolio.

Gaul, who had been the program's biggest cheerleader, was markedly subdued yesterday. He said he believes in the program's accomplishments, while admitting better judgment might have been used.

He said the SAFE program, which began for the county in the 1970s and was expanded to other local governments in 1991, generated $482 million of profits for local governments by bypassing traditional ways of investing and making its own investment decisions.

The profits, Gaul said, were used for such things as hiring police officers and teachers and buying books. If the county had followed a traditional path, much of the profit would have gone to private institutions hired to invest funds, he said.

"I don't think we can lose sight of the fact the program has shown it can be a tremendous return for taxpayers," he said.

Gaul said that the program operated within the confines of Ohio. law and invested only in U.S. government securities.

"There is a question of judgment, but no question of integrity," Gaul said. "Given hindsight, things could have been done differently by those making decisions."

Gaul admitted some Cuyahoga County officials did not know leveraging was being done "on a large scale." For example, the county issued $376 million of taxable notes since last year in an effort to earn arbitrage off the proceeds by investing them in the program.

County officials have said they learned the note proceeds were used to buy long-term securities, a bad strategy for a declining bond market.

Gaul does not appear to absolve brokerage firms that executed trades or sold securities to the program. He said that dealing with hundreds of millions of investment dollars may have resulted in "complacency" and "insensitivity towards living up to responsibility."

As part of a criminal and civil investigation, the Cuyahoga County's prosecutor's office has been sending subpoenas and taking depositions from brokers in the Cleveland offices of McDonald & Co. Securities Inc.; Dean Wilier Reynolds; Kidder, Peabody & Co.; National City Investments; and Society Bank.

Gaul said he has spoken to investigators, but has not given any sworn statements, although some members of the program's staff have been subpoenaed. He added that he's sure the matter will end up in litigation.

As for himself, Gaul has two more years to serve in his term as county treasurer. He said he has not been asked to relinquish his position.

"I will fulfill my obligations -- period," he said.

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