The New York City Department of Investigation yesterday blasted city Comptroller Elizabeth Holtzman as "grossly negligent" for her office's appointment of Fleet Securities as a city bond underwriter after her U.S. Senate campaign received a $450,000 loan from the firm's banking affiliate.

The report, released after Holtzman's second-place finish Tuesday in the Democratic primary for city comptroller, strongly criticizes Holtzman for failing to determine that Fleet Securities was seeking bond underwriting business with the city before her campaign office sought a loan from Fleet Bank.

The incumbent's second-place primary finish does not mean she is out of contention. The top finisher, state Assemblyman Alan Hevesi, did not garner the 40% share needed to avoid a runoff, so the two will face off again on Sept. 28.

Holtzman exercised her right under city charter rules to block the report's release, but reversed that decision Tuesday night after her unexpectedly poor showing in the primary.

"Parts of the report should be reassuring to voters," Holtzman said, noting that it does not find that she showed favoritism to Fleet Securities.

"People in the city are fair and this is only part of a complicated process," which, Holtzman said, does not tell "the whole story." She also will now be given an opportunity to comment formally on the report's findings.

Holtzman said yesterday that she plans to issue a statement within the next several days refuting the report's findings point by point.

The city's Conflicts of Interest Board is reviewing the matter and can fine Holtzman up to $10,000 or refer the matter to federal and state authorities.

Fleet Bank made the loan in August 1992 to Holtzman's failed U.S. Senate campaign. According to the report, Holtzman owes about $240,000 on the loan, which the bank at one point classified as being in default. The report says that Holtzman has since renegotiated the terms of the loan.

The bond underwriter selection is a joint decision by the administration of Mayor David N. Dinkins and Holtzman's office. Holtzman had recommended that the city elevate Fleet Securities into its co-manager bracket from the selling group tier. The co-management group is usually a more lucrative underwriting position.

The report also says that "evidence strongly suggests" that Holtzman knew that Fleet Securities was seeking business with the city at a time when she and her finance officials had sought to renegotiate the terms of the Fleet Bank loan.

Specifically, the report details a June 1992 meeting between several executives from Fleet Securities, Holtzman, and Sheila Levin, finance director of her Senate campaign.

At the meeting, the executive "pitched the firm's qualifications for 45 minutes to an hour and specifically asked that the firm be considered for co-manager status," the report says. The executives also provided Holtzman with a $3,000 contribution for her Senate campaign.

Published reports have said that the city DOI forwarded its findings to U.S. Attorney Mary Jo White for possible criminal charges against Levin, who like Holtzman has also denied any violations.

A spokesman for Fleet did not return telephone calls.

In addition to its findings on Holtzman's conduct, the report also details interviews that city investigators conducted with municipal bond professionals during the course of the investigation.

For example, one former public-finance executive at Fleet Securities, Joseph Bosch, told investigators that political contributions are a "requisite element" of obtaining negotiated municipal bond business in New York State.

"I think it's clear that there are probably four individuals that if you are going to do business in the state ... everything else being equal, it's probably not a bad thing to make political contributions to," Bosch is quoted as telling city investigators.

He said that municipal firms in the state should make these contributions to "the elected governor, the elected state comptroller, the elected mayor, and the elected city comptroller."

Bosch, who was a senior executive vice president at Fleet Securities until January 1992, is now a senior vice president in public finance at George K. Baum & Co.

Other bond industry professionals interviewed for the report echoed the sentiment that political contributions are a necessary part of doing bond business in New York City.

Bridget Jandreau-Smith, a Fleet executive, told investigators that she did not press her objections to contributing money to Holtzman's campaign because she "really felt that if I say no, if I made a huge fuss about it, that my job would be on the line."

The report details a June 1992 breakfast meeting between Holtzman and several Fleet Securities executives, including president John O'Brien, Bosch, senior vice president Gregory LiCalzi, and Jandreau-Smith.

At the meeting, Fleet officials told Holtzman that they wanted to play a larger role in city bond underwritings, the report says, and at its conclusion, Bosch gave Holtzman's campaign finance director a check for $3,000.

"Jandreau-Smith chipped in $500, according to federal election records, but only because she felt some pressure to do so, the report says.

"Jandreau-Smith, who was supporting the candidacy of Geraldine Ferraro in the [Democratic primary for the U.S. Senate] made the contribution reluctantly," the report says.

The DOI report also says the investigation has been expanded to include "questions concerning presentations made to the bank in connection with the loan and certain fund-raising activities."

The Bond Buyer has previously reported that the DOI was investigating Holtzman's fund-raising activities with municipal bond professionals.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.