CHICAGO -- The Cuyahoga County, Ohio, prosecutor's office has begun sending out subpoenas and taking depositions from brokers involved in the county's defunct local government investment pool.

Ronald Riley, an assistant county prosecutor who was appointed last week to head a preliminary criminal and civil review of the investment program, said yesterday that brokers in the Cleveland offices of five brokerage firms and banks were sent subpoenas late last week.

He said that some of the brokers have already given depositions about' their involvement with the Secured Assets Fund Earnings program, which invested public funds for about 75 local governments in Ohio, including Cuyahoga CoUnty.

"We are collecting information and seeing if there is any civil or criminal application," Riley said.

The brokers work at McDonald & Co. Securities Inc.; Dean Witter Reynolds; Kidder, Peabody & Co.; National City Investments; and Society Bank, according to Riley. He also said that more subpoenas are expected.

Though over the last year McDonald & Co. was the senior manager on two Cuyahoga County taxable note issues whose proceeds were invested in the program, the investigation is not focusing on the underwriting of the notes.

Riley said that his office is talking only to individuals at the firms that were involved in selling the SAFE program investment vehicles, such as reverse repurchase agreements.

He said the firms were sent a letter on Monday giving them 24 hours to consider repurchasing some of the remaining securities in the program.

The program, which was run by Cuyahoga County Treasurer Francis Gaul, still contains a leveraged portfolio of about $633 million of intermediate-term securities and about $153 million of mostly Treasury bonds.

According to county spokesman Dennis Roche, county commissioners will meet today to consider what to do with the remaining securities in the program. Potential losses from the sale of the securities have been estimated at $116 million.

Roche has said that the county may try to recover investment losses from brokers who sold securities to the program.

The Securities and Exchange Commission has also begun looking into the program's investment policies.

Roche said that on Monday the County complied with a Written request from the SEC for information on the program's policies and procedures.

Mary Keefe, the SEC's regional director in Chicago, said she could neither confirm nor deny the existence of an investigation.

Meanwhile, Standard & Poor's Corp. affirmed an SP-1-plus short-term debt rating late Monday for Cuyahoga County, after the government executed escrow agreements to ensure the Dec. 30 payment of principal and interest on $246 million of notes that were invested in the SAFE program.

The rating affirmation came after the county entered into escrow agreements with National City Bank to act as trustee for the funds needed to pay off the notes.

The county came up with most of the funds for the note repayment last month when it sold $265 million of short-term securities from the SAFE program at a $14.5 million loss.

Diane Brosen, a director at Standard & Poor's, said the escrow was "very plain vanilla" and that the funds will be invested in U.S. Treasury securities that mature on Dec. 30, the same maturity date as the notes. The rating agency requested that the money be placed with a third-party trustee until the notes mature.

Moody's Investors Service, which rates the notes MIG-1, deferred taking action on the rating until the escrowed funds are invested, according to an official at the agency.

Moody's has placed Cuyahoga County's ratings, including its Aa long-term rating, under review in the wake of the investment troubles.

County commissioners shut down the SAFE program last month after learning about undisclosed investment practices and large paper losses. 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 Cuyahoga County.

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.