CHICAGO -- Cuyahoga County, Ohio, has launched a criminal and civil probe into its now-defunct government investment pool program.

Yesterday, county commissioners announced the appointment of Cuyahoga County assistant prosecutor Ronald Riley to head "preliminary reviews" of the Secured Assets Fund Earnings program and to evaluate "any criminal responsibility which surfaces in the course of his work."

Dennis Roche, a county spokesman, said the commissioners do not suspect criminal activity was involved, but they are "trying to make sure all the [bases] are covered."

He said the primary focus of the probe is in the civil area, and that Cuyahoga County prosecutor Stephanie Tubbs Jones is expected to name a special counsel with expertise in securities matters within the next few days.

According to a press release from the county, the special counsel will "evaluate and pursue any and all civil remedies as dictated by the facts developed in the investigation."

Roche said that the civil part of the probe will mainly look into securities firms that were involved in leveraging the SAFE program's portfolio. A list of those firms is not yet available. Issues for investigators will include suitability of investments and the "eventual possible recovery" of investment losses, he added.

Securities firms involved in two taxable revenue note issues sold by the county will apparently not be pan of the investigation.

"It appears the note sales were pretty straightforward," Roche said.

Cleveland-based McDonald & Co. Securities Inc. was the bookrunning manager for $246 million of tax .and current revenue notes due to mature Dec. 30, and for $130 million of notes sold last year. Proceeds from the issues were invested in the SAFE program to purchase long-term securities.

Revelations about that investment practice as well as the use of a reverse repurchase agreement and large paper losses in the portfolio led county commissioners to shut down the SAFE program last month. The program, which once contained $1.1 billion of public funds from the county and about 75 other local governments in Ohio, returned all principal invested in the fund to all the governments except for Cuyahoga County.

Last week, the county sold $265 million of short-term securities at a $14.5 million loss to raise funds to help pay principal and interest on the $246 million of notes. On Monday, commissioners authorized the negotiation of an escrow agreement for the repayment of the notes on Dec. 30. Standard & Poor's Corp., which rates the notes SP1-plus, had requested that the money be placed with a third-party trustee until the notes mature.

Roche said final documents for the escrow agreement should be in hand today or tomorrow. Officials at both Standard & Poor's and Moody's Investors Service, which rates the notes MIG-1, said on Tuesday they were waiting to review the final documents.

Moody's has placed Cuyahoga County's ratings, including its Aa longterm rating, on review in the wake of the investment troubles.

The SAFE program, which had been run by Cuyahoga County Treasurer Francis Gaul, still contains a leveraged portfolio of about $633 million in intermediate-term securities and about $153 million of mostly Treasury bonds. As of last week, actual losses in the program would have been $116 million if the remaining portfolio were marked to market.

Roche said the county has not taken any action to sell any more securities since last week.

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