The New York City Department of Investigation has expanded its inquiry into a controversial underwriter choice made by the staff of city Comptroller Elizabeth Holtzman to include Holtzman's general fund-raising activities, a source close to the investigation said yesterday.

The source, who wished anonymity, said the department will ask a number of Wall Street investment firms if Holtzman had offered city bond underwriting business in exchange for campaign contributions.

The Department of Investigation, which has already acknowledged that it is reviewing the circumstances surrounding the appointment of a firm by the comptroller's office to the city bond syndicate, would not comment on the expansion sion of the investigation.

The department's inquiry into Holtzman's fund-raising tactics is part of its investigation of both Holtzman and her campaign following the selection of Fleet Securities as a co-manager in the city's lucrative bond underwriting team. Fleet is also under investigation.

The selection of Fleet was made on the recommendation of Holtzman's finance staff and after her campaign for a U.S. senate seat received a $450,000 loan from Fleet's Securities' corporate affiliate, Fleet Bank.

The city later dropped Fleet as a co-manager as the investigation began to unfold.

Holtzman has said the selection was based on Fleet's ability to sell city debt, and denied that its selection as co-manager was tied to the bank loan.

The investigation into the matter has widened in recent weeks. City investigators have met with at least one Wall Street firm, a municipal market source said, to discuss in general terms Holtzman's fund-raising techniques.

The source with knowledge of the city investigation said the department will soon call on additional firms to discuss Holtzman's fund-raising tactics and to determine if underwriter recommendations by her office were connected to campaign contributions. The source said the department is not relying on issuing subpoenas to the firms.

Admission to the lucrative senior manager and co-manager spots on the city bond underwriting team is a joint decision made by the finance officials working for the administration of Mayor David N. Dinkins and the comptroller's office.

In March, the city, after a long review and selection process, chose seven senior managers and 23 co-managers to underwrite bonds. The city sells the vast majority of its debt through a negotiated underwriting.

A finance source close to Dinkins said the mayor reviews a underwriter choices.

Holtzman has said she only recommends those selected as senior managers, relying on her staff to select co-managers.

Daniel F. Kolb, a senior partner at the law firm of Davis Polk & Wardwell, who was recently hired to represent both Holtzman and the campaign, said he is unaware of any expansion of the department's initial investigation beyond the Fleet matter.

Kolb said yesterday that the department's inquiry focuses on whether Holtzman received favorable terms on a the loan, which was made by Fleet to Holtzman's senate campaign in August 1992. The loan carried a 7% interest rate, but was made without Holtzman pledging her assets as collateral.

Kolb said that the department has contacted several Wall Street firms, but only in the context of a September fund-raiser that the Holtzman campaign has promised would be used to repay the loan. The fund-raiser, however, was a disappointment, Kolb said, adding that many Wall Street firms failed to deliver on contributions Holtzman had expected.

In the end, Kolb said, the fund-raiser only garnered about 200,000. Kolb said the Department is investigating if there was enough Wall Street fund-raising interest to support the loan.

The Bond Buyer reported in May that Holtzman had asked a number of Wall Street investment banks that participate in city bond underwriting to donate tens of thousands of dollars to her re-election campaign. At the time, investment bankers said Holtzman had met with officials at top municipal-market firms asking for specific contributions.

Holtzman campaign officials confirmed that the comptroller had met with bankers as part of her normal fund-raising activities, but put no pressure on market executive to provide contributions. Campaign officials also denied that the comptroller had asked for specific sums of money.

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