CHICAGO -- A federal judge last week ordered that $43 million awarded to the Iowa Trust be placed in escrow until the appeal process is exhausted by the defendant.
The extension will remain in effect until a Colorado bank has completed an appeal of the court decision that orders the bank to turn the money over to the trust.
Colorado Federal District Court Judge Lewis T. Babcock granted the extension of the 10-day stay. The judge ordered that the money be held in escrow until the case is completed, according to Bill Roach, director of communications for the Iowa attorney general's office. Mr. Roach said the appeal process could take a year or more.
The Iowa attorney general's office, which filed the lawsuit against Jefferson Bank & Trust of Lakewood, Colorado, alleges the Iowa Trust and not the bank is the "true" owner of the $43 million. Initially, the office had hoped for the funds to be dispersed to the cash-strapped governments that participated in the Iowa Trust by this week.
"We are really pleased to identify all of the [missing] money and to get a court order to recover half of it. But there are obvious hardships for the Iowa communities who won't have the money soon," Mr. Roach said.
When Judge Babcock ordered the bank to return the $43 million to the Iowa Trust on May 8, the bank said it would appeal the ruling, claiming that the money belonged to the bank and not to the Iowa Trust.
According to the Iowa attorney general's office, those funds had been transferred to the bank through a series of transactions handled by Steven D. Wymer, head of Institutional Treasury Management, Iowa Trust's investment adviser.
Earlier this month, the Securities and Exchange Commission revoked the license of Institutional Treasury Management to practice as an investment adviser. The revocation came about as part of a settlement in which the firm neither admitted nor denied the SEC's fraud charges.
Meanwhile, an Iowa Finance Authority plan to issue about $20 million of bonds was put on hold, pending distribution of the funds. The plan also entails lending the proceeds to municipalities trying to recover funds lost in the Iowa Trust scandal.
Since the money may not be distributed anytime soon, organizers of the deal are discussing whether or not to go through with it during the extended stay.
"We're talking with the [Iowa] attorney general's office, trying to decide how comfortable we are in issuing bonds, considering the stay," said Tom Stanberry, a managing director of public finance at Piper, Jaffray Inc., the senior manager for the authority's deal.
Mr. Stanberry said he hopes a decision will be reached by the end of the week.
Mr. Roach has said the Iowa attorney general's office believes the remaining $33 million of the total $76 million missing from the Iowa Trust account is being held in California financial institutions.