BOSTON - A Boston bond law firm lost its bid to remain with the Massachusetts Water Resources Authority because it represented the authority's former financial adviser at the same time, according to authority sources.
While serving as the long-time bond counsel for the MWRA, the law firm of Mintz, Levin, Cohn, Ferris, Glovsky & Popeo was also retained by former investment banker and financial adviser Mark S. Ferber to act as his personal attorney. Ferber is now under federal investigation for securities law violations.
The law firm was vying to retain its post with the MWRA during a recent selection process.
According to documents obtained by The Bond Buyer, the firm represented Ferber from January 1993 through July 1993.
Mintz Levin said several senior officials at the water authority knew about the relationship.
A spokesman for the MWRA yesterday said that the authority's chief financial officer, Philip N. Shapiro, was advised of the relationship early in 1993. Shapiro, now a managing director at Standard & Poor's Corp., could not be reached for comment.
Mintz Levin and Ferber's relationship "severely damaged" the firm during the authority's recent selection process for bond counsel and disclosure counsel, high-ranking sources at the MWRA said yesterday.
On Wednesday, the board of directors of the MWRA selected the law firm of Ropes & Gray to serve as bond counsel for the next four years and also chose Palmer & Dodge to serve in the newly created position of closure counsel.
Mintz Levin had served as bond counsel for the authority for the previous five years. The firm had submitted applications for both positions during this last selection.
"It's frustrating that we know we could completely exonerate ourselves, if it were not for attorney-client privilege," Michael Gardener, a partner at the firm, said yesterday in a telephone interview. "We know that attorney-client privilege did not allow us to fully answer all of the questions posed by the authority, and we understand their reasoning for choosing other firms."
Had there been no relationship, several municipal market sources in Boston familiar with the situation said they expected that Mintz Levin would have been selected for one of the authority's legal posts.
The relationship between Ferber and the law firm was spelled out in correspondence from Mintz Levin to the authority during the recent selection process. An April 5, 1994, letter to the MWRA from Gregory A. Sandomirsky, a partner at Mintz Levin, said, "Mintz Levin's prior representation of Mr. Ferber during the relevant time period concerned his personal business relationships with Lazard Freres & Co. and with First Albany."
During the period, Ferber left his position as a partner at Lazard Freres and became vice chairman at First Albany.
Mintz Levin, and specifically partner Robert J. Popeo, played a pivotal role in the structuring of Ferber's contract with First Albany that reportedly paid him between $3 million and $5 million in salary and included 750,000 First Albany shares, according to several sources familiar with the contract.
Sandomirsky said in his April 5 letter that Mintz Levin "did not represent either Mr. Ferber, First Albany, or Lazard Freres, or provide advice to the MWRA, in connection with the 1993 transfer of the financial advisory services contract with the MWRA."
Additionally, Gardener said yesterday that Popeo had advised former MWRA chief financial officer Shapiro about his representation of Ferber as early as January of 1993. Also, an article in the Boston Globe on Feb. 5, 1993, said that Popeo structured Ferber's deal at First Albany.
The MWRA board of directors approved the transfer of financial advisory services to First Albany when Ferber joined the firm in February 1993.
Last summer, the MWRA dismissed Ferber, who had served as its financial adviser for over 10 years, and disbanded its underwriting team after learning that Ferber had an undisclosed agreement with Merrill Lynch & Co.
Merrill Lynch served as one of the authority's senior managers.
In a 1990 contract between Lazard Freres and Merrill Lynch, Ferber was paid $2.8 million over three years to give Merrill Lynch advice on interest rate swaps.
But a report from the Massachusetts inspector general, Robert A. Cerasoli, maintained that for that fee, Ferber also helped Merrill Lynch gain underwriting slots and business in other parts of the country and provided the firm with inside information that breached the fiduciary responsibility he owed his clients. The inspector general also said Ferber received favorable bond allocations from Merrill Lynch.
Merrill Lynch and Lazard Freres have denied that the contract between the two firms was ever meant for any of Ferber's advisory clients. Both said no inappropriate disclosure took place as part of the contract.
Another source familiar with the Ferber investigation said Mintz Levin also helped Ferber structure his severance package when he was fired in August 1993.
In the April 5 letter, Sandomirsky said that "because of ethical constraints ... Mintz Levin cannot disclose what, if anything, it knows regarding the Merrill Lynch-Lazard Freres contract."
But Sandomirsky said that even if Ferber had revealed the contract to the firm, attorney-client privilege would forbid the firm from disclosing that knowledge.
At an April 7 meeting between the firm and the authority, the MWRA's selection committee asked why the firm did not tell the authority about its relationship with Ferber prior to the appearance of stories in both The Bond Buyer and the Boston Globe.
In response, Sandomirsky sent another letter to the authority on April 8, saying that the contract between Mintz Levin and the authority did not allow the firm to inform the authority about any confidential information shared with Ferber.
In the second letter, Sandomirsky said "our duties as bond counsel included providing an expert and objective legal opinion with respect ... to the authority's bonds, assisting the authority in planning and structuring its financings, preparing documents related to the issuance of the authority's bonds, [and] assisting the authority in preparing its official statements."
Sandomirsky said the firm's representation of Ferber had nothing to do with the authority's contractual relationship with its financial adviser. He said the firm's representation of Ferber "did not impair our ability to exercise independent professional judgment as bond counsel."
An MWRA source said, "It is pretty far-fetched to say that the only reason that the firm did not report the relationship to the authority was because its business with Ferber had nothing to do with the authority. It's a real serious issue when you find out that the firm that is supposed to be providing you with independent counsel is advising your financial adviser."
Sandomirsky's letter states that if the relationship with Ferber had adversely affected the firm's ability to provide independent advice, the firm would have had to resign from its position at the authority.
But Sandomirsky said in the letter that even if the firm had received "confidential information concerning the expired contract between Lazard Freres and Merrill Lynch during the period in question, such information could not in any way have impaired our judgment as bond counsel."