ATLANTA -- The Lee County, Fla., commissioners board Wednesday rejected Donaldson, Lufkin & Jenrette Securities Corp. as lead manager for a $20 million road bond issue because of concerns about the firm's involvement in the Bill Collins extortion trial in Kentucky.

The move to throw out the county staff s March recommendation that Donaldson Lufkin be chosen book-runner for the gas tax refunding deal came on a 4-to-1 vote, according to commissioner Doug St. Cerny. Commission chairman John Manning was the lone board member favoring a contract with Donaldson, St. Cerny said.

The board's decision was the second time in three weeks that pending contracts with Donaldson Lufkin were scrutinized in light of the conviction of Bill Collins.

Last month, The office of the attorney general of West Virginia indicated that it could not back the state School Building Authority's choice of Donaldson to head a $150 million refunding deal. The office said that a review of the Kentucky situation must first conclude that the firm had not run afoul of state or federal laws.

With the Lee County issue, St. Cerny said the board decided to vote after becoming aware of news reports of a link between Donaldson Lufkin and the extortion trial of Bill Collins, the husband of former Kentucky Gov. Martha Layne Collins.

Bill Collins was found guilty last month in a Frankfort, Ky., federal court of one extortion count and a related tax fraud charge. He was accused of forcing Donaldson Lufkin and another firm, Cranston Securities Co., to make political contributions and to invest in his horse partnership businesses in exchange for state bond business between 1983 and 1987, his wife's term of office.

During that period, Donaldson Lufkin, whose executives invested a total of $1.2 million in Collins' horse partnerships, became bookrunners on Kentucky state bond deals totaling $500 million.

Neither Donaldson nor any of its officials have been charged in the case.

"From the point of view of perceptions being formed about the county, the board decided it was better off at this time to reject Donaldson's proposal," St. Cerny said in an interview.

Catherine Conroy, a Donaldson vice president and the company's spokeswoman, said yesterday, "We do share the commissioners' concerns about ethics, but we must stress that DLJ did not engage in any misconduct in Kentucky and that the firm and its employees were not charged with anything.

"Any inference by anyone to the contrary is unfounded and incorrect. We vigorously support the efforts of the municipal bond industry to institute reforms that will spare the reputation of legitimate and honorable participants from politically inspired mudslinging."

St. Cerny stressed that the present political climate in Lee County demands that its commissioners take special steps to be above reproach in their choice of bond underwriters.

Federal investigators are looking into some of the county's past choices of bond underwriters in connection with a wide-ranging investigation that also is examining allegations of other types of government corruption, including illegal land development.

St. Cerny said that following the vote to reject Donaldson Lufkin, he and commissioner Ray Judah unsuccessfully backed a motion to put the gas tax offering out for competitive bid.

St. Cerny said the commissioners then decided that Lee County will begin a new selection process for a senior manager to negotiate the offering -- a process the county hopes to complete within several weeks. He said that Donaldson Lufkin will not be barred from consideration in the new round, but must respond to questions posed Wednesday.

In March, the county's finance committee selected Donaldson Lufkin to sell the gas tax refunding bonds, one of five refinancings approved by staff members involving a total of more than $200 million in bonds. Donaldson Lufkin's only previous participation in Lee County offerings was as a co-manager on a $49.1 million airport revenue bond issue sold in September 1992.

St. Cerny said that the commissioners had asked that Donaldson show it had made administrative and management changes in wake of the Kentucky situation. Donaldson Lufkin's response was not deemed satisfactory, he said.

St. Cerny said that commissioner Frank Mann was the chief questioner of Steve Stern, the Donaldson Lufkin official present at the meeting.

According to the county's video transcript of the meeting, Mann said, My concern is that those same [Donaldson officials] that were there in Kentucky are still there and in senior management."

Mann was not available for comment yesterday, but a spokeswoman said, "We are trying very hard to make the public trust us, and the commissioners felt it was important the record be clear on this matter" of changes made at Donaldson.

In response to the commissioners' questions, Stern, a senior vice president in public finance at Donaldson's Jacksonville, Fla., office, said that the firm had tightened a strict ethics code after being bought by the Equitable Life Assurance Society of the United States in 1985.

Stern also said that Donaldson was one of 17 municipal bond underwriters that agreed on Oct. 18 to ban political contributions to state and local officials. In addition, he said that Donaldson had not given contributions in Lee County within the last 15 months.

Commission chairman Manning, the only commissioner to endorse Donaldson, said, "What we are saying [to Donaldson] is thanks for the [refunding proposal], but don't come back," according to the transcript. He was unavailable for comment yesterday.

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