DALLAS -- A Smith Barney Shearson broker last year claimed he should be paid a bonus because his political connections to Harris County officials were critical in getting the firm assignments in $727 million of bond issues, a published report says.
Citing an internal March 1992 memo, the Houston Post reported on Sunday that broker John Wilson L. Kelsey cited his links to Harris County Judge Jon Lindsay and others as key to the county's decision to include the firm in two negotiated refundings in 1991 and 1992.
Further, the memo says that while other brokerages suggested the refundings, Smith Barney investment bankers did not have to make a presentation to be selected.
"In each case, I was personally contacted by the chief executive officer [Lindsay] of Harris County, and Smith Barney was awarded the business. Smith Barney made no presentations or proposals prior to obtaining the business," Kelsey wrote in a memo in which he argued that he should be paid a bonus for his work.
Through a secretary, Mr. Kelsey, a well known political fundraiser, yesterday declined to be interviewed. However, a Smith Barney Shearson spokesman in New York City confirmed that the 1992 memo existed and did not dispute the accuracy of the Post article.
Bob Connor. a spokesman for the brokerage firm, which was created this summer through the merger of Smith Barney, Harris Upham & Co., and Shearson Lehman Brothers, said that even though Kelsey was not an investment banker, all employees are encouraged to help the firm land underwriting business.
However, he said, "Our policy is that we don't obtain business through political contributions. That is not the way we built our business. Our policy is that we do not reimburse employees for making political contributions."
Asked if he were aware of other instances in which Smith Barney Shearson employees used political connections to gain underwriting business, Connor said, "I'm not going to answer that."
The memorandum is a rare look at a common practice used by large brokerages to pay finder's fees to outsiders or its own employees. Underwriters often rely on local brokers to scout out deals on which they may bid. The reward for a broker is a fee if the transaction results in profits for the firm.
"I think everybody does that," said a Houston-based executive for one Wall Street firm that offers its brokers a similar incentive.
Others say the memo was either uncharacteristically candid or involved "bragging" by a broker trying to collect a bonus for his work. In his memo, Kelsey cites the importance of his role in organizing a 1990 fundraiser for Judge Lindsay, in which some $562,000 was raised, as critical to the firm's position as a senior manager.
Kelsey also noted that he had entertained Lindsay, other members of the Harris County Commissioners Court, and other elected officials at a 20,000-acre hunting ranch in which Kelsey has an interest.
It is not clear from the published report if Kelsey was paid a bonus because of the successful underwritings.
Records from Securities Data Co. show that Smith Barney was a Senior manager on several Harris County toll road issues during that time period, along with many other Wall Street firms who frequently underwrite the county's bonds.
Judge Lindsay and other Harris County officials could not be reached yesterday on the selection process or why Smith Barney was selected for its role. One underwriter familiar with the selection procedures defended the county.
"I can't tell you why Smith Barney was chosen, but I can tell you that they are as qualified as anybody to underwrite the bonds, " said the veteran bond executive. "Whether it was buddy-buddy or not, who knows? But I don't think you can argue they couldn't or didn't do the job that Harris County wanted."
The published report comes at a time when the relationships between politicians and bond firms are drawing increasing scrutiny from Congress, the Securities and Exchange Commission, and some industry executives.
The disclosure also comes at a time of intense local scrutiny of such relationships after a former developer recently accused Lindsay of accepting a bribe in exchange for re-routing a county road to property owned by the developer.
Lindsay has denied the allegation, but was not available for comment yesterday.
Several underwriters contacted yesterday declined to comment publicly on the report, but at least one said he believes the scrutiny could ruin careers. "Nowadays, if you are elected you are evil, and if you are a bond dealer and know an elected official, then you must be crooked," said the banker. "I think the finger-pointing has gone too far."