A New Jersey senator trying to find an explanation for unusual allocations on a 1992 agency issue has stepped up the pressure, and this week threatened to seek subpoena power if necessary to get his questions answered.
For the, past several weeks, Sen. Robert E. Littell, R-Sussex, has been asking those involved in a 1992 bond sale by the New Jersey Housing and Mortgage Figance Agency to explain why Cypress Securities, a small New Jersey-based firm, received more than $100,000 in profits on the deal even though it did not sell any bonds.
The senator's requests have so far found their way to Lehman Brothers, the senior manager on the $278 million deal, and the state treasurer's office. Both pointed to the agency itself as the party that decided to give Cypress the allocation, which amounted to 5% of the profits on the entire deal.
Although 19 firms on the 25-member syndicate were allotted bonds and Cypress was not, Cypress' compensation was the fourth richest on the team, according to a memo Lehman Brothers sent the state in June.
William Abele, assistant executive director of the agency, said Monday that officials there expected to release a statement on Tuesday to explain the allocations. But yesterday, Abele said agency officials had decided a proper response would require a more detailed review of documents from the sale, so a statement would not be ready until Friday or Monday "at the earliest."
Abele declined to discuss the matter until the agency's formal response was finished.
Critics of the deal have questioned whether the generous allocation to Cypress was attributable to the fact that the housing agency's former chairman, Melvin R. Primas, is now a managing director at Cypress.
But David Thompson, the president of Cypress, said Primas is not involved in negotiating or developing any state-level business, and does not share in any of the profits Cypress makes from underwriting state-level bond issues.
"Randy Primas has not been the point person with the various state agencies," Thompson said. Thompson said he spoke personally with the agency's executive director, Christiana Folio, and with M. Robert De-Cotiis, the former chief counsel to Gov. Jim Florio, in developing a role for Cypress on the agency's transaction.
Thompson said he is not sure who decided Cypress should get 5%, "but clearly, I didn't try to argue our money or percentage down,"
Littell said his patience with the responses so far is wearing thin. "If I don't get a straight answer, I'll ask for subpoena power and let them say under oath" how the allocations were decided, Littell said in an interview this week.
In his letter earlier this month to Lehman Brothers, Littell asked the firm to explain what Cypress did "to deserve five times as much in fees as any other member of the selling group."
Lehman's response letter, signed by managing director R. Thornton Lurie, said, "The agency did not share with Lehman Brothers its reasons for the assignment of a specific percentage of the commitment to Cypress Securities."
That prompted Littell last Friday to send a letter to Stephanie R. Bush, commissioner of the Department of Community Affairs, which oversees the agency.
The letter restated the questions Littell has been asking over the past several weeks, and added a warning.
"Up to now I have been content to simply ask these questions informally," the letter said. "However, I am becoming somewhat concerned that I haven't been able to get answers to what are relatively simple questions. Please be advised that I intend to pursue this matter until I get answers to my questions, even if more formal and authoritative means must be used."
Cypress Securities was one of six firms, all of which were minority- or locally-owned, which received compensation and did not sell any bonds on the deal, in accordance with the agency's instructions.
But the other firms' takedowns were only about one-tenth the size of the profits afforded Cypress, with four amounting to $11,213 each and one totaling $22,244, according to Lehman Brothers.
Cypress officials and a spokesman for the state treasury pointed out that Cypress committed itself to 5% of the deal at the outset, meaning it was legally responsible to the agency for that sum if the deal fell through. The 5% share of the profits on the deal Cypress received was direct compensation for assuming that responsibility, Thompson said.
The other firms that sold no bonds but also received profit shares committed themselves to commensurately smaller shares of the liability.
In a response letter to Littell last week, Lehman officials wrote that Cypress' allocation amounted to $111,218, exactly 5% of the $2.2 million in total profits on the transaction. Thompson of Cypress said the check he received from Lehman was $87,005. In either case, the amount ranks the firm fourth in terms of compensation.
Thompson said recent press accounts have singled out Cypress, unfairly implying the firm was awarded business on the basis of its political connections and ignoring the argument that the allocations rewarded the firm for taking on a bigger share of the transaction's liability.
"It hurts because it looks like we're just sitting back waiting for checks to come in and that's not what happens," Thompson said. "This is not a closet with a phone number and a post office box. This is a real firm and these kind of tabloid headlines are counterproductive to our efforts to properly establish ourselves, which we've been able to do in spite of this."