Ponzi schemer II: Scott Rothstein and his run at Florida's treasure chest

Here we are, two days in a row with fresh stories on Ponzi billionaires using their money trying to corrupt government. See the previous post for Allen Stanford's successful infiltration of the US Congress, as investigated by the Miami Herald. On Tuesday it’s the St. Petersburg Times’ story on Scott Rothstein and his run at Alex Sink’s office and the huge treasure chest of the Florida State Board of Administration.


The story also was the main lead in the Miami Herald, thanks to the news exchange partnership of the two papers. We’ve got to say the old mainstream media aren’t dead yet. The two stories mark tremendous effort on the investigative side. They tell complicated stories, especially the St. Pete paper’s story on the State Board of Administration, which is little known but is so big ($136 billion) that if it loses a couple billion on bad investments it’s only a few percent.

And yes, this blog has been aware of the SBA for many months, thanks to Jeb Bush, the ex-governor who became a consultant for now-belly-up Lehman Brothers and helped grease the way for good Floridians’ money to disappear from SBA accounts.

Read about that at this link to one of the posts on this blog.

But back to the issue at hand. Alex Sink is the highest-ranking Democrat in state government as chief financial officer, and the likely candidate for governor against a cabinet colleague, Attorney General Bill McCollum. Scott Rothstein was a generous donor to Republicans and not for the Democrats until this year when he gave $200,000 to the Florida Democratic Party, fulfilling a pledge made at a fundraiser for Sink, the St. Pete Times reports. Her office then was recruiting law firms for legal work, and Rothstein’s firm tried hard to get it – in vain, as it turned out. But still, what’s a Ponzi schemer likely to want to do with a big state legal job? Rip it off big-time, I’d say, to make a big profit on that investment of $200,000.

Couple questions:

• Why does Florida have to pay “tens of millions” in fees for legal work?
• Why doesn’t the Attorney General supply legal workers for some big part of these jobs?
• Which firms got the work, and since three of them are reported as having donated to Sink, why aren’t we hearing more about their qualifications?

To Sink’s credit, she’s trying to raise the SBA as a campaign issue. Here’s the way the St. Pete Times puts it (this aspect doesn’t seem to be included in the print edition of the Miami Herald):

Sink has made reform of the SBA a campaign issue. She has suggested that the oversight board be expanded to include nonpoliticians, which Crist and McCollum have balked at. In a campaign e-mail, Sink recently said her reforms were being blocked by "career politicians who would rather protect their own political interests'' than the retirement checks of Floridians.

Should she and her two fellow politicians who oversee the SBA be barred from accepting campaign contributions from firms seeking business with the agency?

"I think the whole governance structure is not appropriate,'' she said. "It would suit me to have no elected official on the board.''

There’s another way to do it. As this blog said on Monday: Get money out of politics.

Let's think again of how Jeb and Lehman cost Florida bigtime

In Wednesday's NY Times, this article:
New Jersey Sues Over Its Lehman Losses - DealBook Blog - NYTimes.com
served as a reminder of how Florida got ripped off in the same way. Has Florida sued? Not mentioned in the article, though California was cited as having sued before New Jersey.

Where are we? Why no suit?

New Jersey is out $180 million thanks to the collapse of Lehman. Florida also lost many millions, though a light search doesn't reveal how much. There is an interesting similarity between Florida and New Jersey, in that both states had a board of officials supposedly overseeing the operation of the fund -- like the money market funds we ordinary citizens have been forced to use by our friendly banks -- where revenue was parked until needed by local governments to pay their staff and other obligations. In Florida it's the State Board of Administration. New Jersey calls it the State Investment Council. Here's a quote from the Times story about that board:

State Senator Joseph Pennacchio, a Republican who has been critical of both Lehman and the State Investment Council, told The Times in an interview that it made sense to sue. But he also called for legislative hearings into the council’s investment practices and said that the council included three former Lehman executives and the wife of a former Lehman executive.

“That raises our level of suspicion and cynicism about the whole deal,” Mr. Pennacchio told The Times. “It makes sense to go after Lehman. But we also want to know if people on the council did things they should not have done.”

I'd like to know the same kind of stuff about our Florida counterpart. It's deeply suspicious because Jeb Bush was on that board and then when he left the governor's office he became a well-paid consultant to Lehman.

Jeb, are you refunding your bonuses?

Thankful for small things, like the Miami Herald business page

You may think I'm not having much of a Thanksgiving when I say I'm thankful for this piece in today's Miami Herald Investors wary of state pool - Business - MiamiHerald.com. I'm far more thankful for many other things including the feast coming later this afternoon. But for the moment I'm happy and thankful that I'm not the only one worried about health of the Florida state money market fund for local governments and their agencies.

Yes, faithful readers, this dense story is back, and I'm still wondering why Jeb Bush hasn't been called on the carpet over this one. This blog has hacked away on this story (a link here to a post a year ago, too prescient by far in predicting the global financial crisis that is falling into Barack Obama's lap), trying to keep the questions alive:

• Why did Jeb Bush let crappy Lehman Brothers investments sneak into the fund backing up our school boards and police departments?
• Why did Jeb Bush become a well-paid consultant to Lehman after leaving the governor's office two years ago?
• Why hasn't he been called on the carpet? (Oh, sorry, already posed that one.)

So, yes, thank you, Miami Herald for keeping the story alive, though I'd appreciate your putting Jeb's name in it as one of the causitive agents in this rip-off of public money. Next time, huh?

As the Herald's story started:

Last fall, a state investment fund in which counties, cities and other local agencies parked extra cash temporarily was the largest in the country, at $26.1 billion.

There was a big run on that fund and it's now down to $5.7 billion, the Herald reports, and agencies can't pull all their money out anymore. Why? Because some of the investments are still crap. Thanks, Jeb. Were you planning to run for any other office anytime in this century?

Subprime crisis in your insurance company?

Last year this blogger dipped into financial fiasco several times as the subprime crisis began to affect Florida’s public bodies. That is: Your tax dollars had been whacked right out of the savings accounts of school districts, county agencies and city governments and sent to perdition.

New stuff trickles out from time to time, so here’s a little roundup. I pause to say that this is probably far from complete, as other stories may be coming out every day. It’s just that they are hard to recognize, disguised under headlines like this one in the Miami Herald, “Citizens discounts millions.”


What’s that supposed to mean? Well, it’s talking about Citizens Property Insurance, which you may know as the largest insurer of homes in Florida, a state-run company to which you probably pay premiums.

What does “discounts millions” mean? It means that $88 million that used to be in Citizens’ accounts to pay your claims and otherwise do business isn’t there anymore. That is, an investment that used to be so solid that it was like cash now doesn’t sell, so it has to be downgraded to nothing on a balance sheet.

Who’s to blame? Start with Jeb Bush, who managed this for two terms as governor and now is a consultant for Lehman Bros., which sold a ton of subprime stuff to Florida. Talk about a conflict of interest! While in office Jeb was a trustee of the State Board of Administration, which is like a bank or money market fund for government bodies to park their money, and now he’s “advising” the company that sold bad investments to the SBA.

Back in December some bloggers were demanding that Jeb disclose the details of his contract with Lehman. Heard anything? Jeb! Speak up! Can’t hear you!

The reader may be baffled. Haven’t heard of this? Try Googling “jeb bush lehman brothers” and see what’s under the rock.

Next item: The NY Times business section on Tuesday had a front-page story with the headline “High Finance Backfires on Alabama County.”

Again, the headline is a little obfuscatory. The county in question is Jefferson County, home to Birmingham, the largest city in Alabama, so not exactly some remote place out in the sticks. Ought to have some people with financial acumen.

Nonetheless, they are in danger of going belly-up. The whole county. The subprime thing hit them with $5.4 billion worth of funny investments. A ton of swaps. Exotic bond deals. Interest rates ballooning like those funny mortgages for poor folks.

Next item: If we’re lucky to be doing better than Jefferson County in neighboring Alabama, thank goodness we’re not in the private sector, where the numbers can be much higher. Here’s Carlyle Capital Group defaulting on $16.6 billion. Pretty soon this is going to add up to real money.