A document packet of mysterious origin. A city official who denies sending a letter that bears his signature. A councilman pressuring city employees to give a lucrative deal to a contractor who’s been investigated for alleged criminal misconduct. And, up for grabs, the underwriting commissions on a whopping $1.2 billion worth of airport bonds.
Just weeks before a new Atlanta mayor and City Council come on board, one of the city’s biggest bond issues of the year — a much-needed initiative to fund the new international terminal at Hartsfield-Jackson Airport — has been delayed because of a situation that’s variously been described as a simple misunderstanding, a conspiracy to deny business to minority contractors and, most alarmingly, a suspicious effort to place two particular bond firms in a position to earn millions of dollars.
At the center of the commotion is C.T. Martin, the soft-voiced yet prickly councilman who’s represented much of Atlanta’s far western neighborhoods since 1990. Martin says he’s fighting to get Grigsby & Associates and Rice Financial Products, two out-of-state and minority-owned bond underwriters, a bigger chunk of the airport bond deal because minority companies have historically been shut out of Wall Street paydays.
But Martin’s advocacy on behalf of the two firms has proved troubling to several of his fellow councilmembers, as well as to outgoing Chief Financial Officer Jim Glass, who put the brakes on the bond deal and requested an investigation by the city’s legal department.
“We’re conducting a full compliance investigation into this matter,” City Attorney Roger Bhandari said during a Dec. 2 Council meeting. “As you know, sometimes compliance investigations can lead to criminal wrongdoing, in which case, we’ll refer it to the proper authorities. It will not just be a look at ethics. It will be a look at all facets of the law.”
The imbroglio began this fall, when Martin and fellow Councilman H. Lamar Willis expressed concern about inadequate minority participation in the upcoming airport bond deal. Historically, the city has reserved at least 25 percent of its bond underwriting business for minority-owned firms. Underwriters are selected from a list of prequalified firms by bonding experts within the city finance department, who can choose to take — or ignore — suggestions from councilmembers. For very large bond issues, like the $1.2 billion airport financing package, it’s not uncommon for six or seven firms to share the underwriting duties at different levels of involvement.
At the Council’s Sept. 8 meeting, Martin and Willis asked a finance department staffer to give a bigger share of the airport bond deal to San Francisco-based Grigsby and New York-based Rice, both of which had already been selected for a 5 percent cut each.
But it seems there was a failure to communicate.
Carmen Pigler, the city’s chief of debt and investments, agreed to elevate the two firms to “co-senior manager” status, which, translated from bonding lingo, meant their share of the deal would increase to about 12 percent. That’s still much less than Merrill Lynch-Bank of America, which had been assigned lead underwriter status with a 50 percent cut of the deal.
Martin and Willis apparently left that meeting believing Grigsby and Rice would share equally with Merrill Lynch. But a flurry of e-mails, letters and memos obtained by CL show that the ensuing three months were marked by confusion over just how large each bond underwriter’s stake would be. When Martin realized the two minority firms had not been given equal status with Merrill Lynch, he fired off memos and convened tense meetings with finance staff, a move that raised eyebrows among some on the Council.
“I stand in support of inclusivity, but there’s a process,” says Council President Lisa Borders. “Any legislative meddling in the operational side of [city government] to circumvent that process is grossly inappropriate.”
Things took a strange turn in mid-November, when several councilmembers found packages on their home doorsteps. Inside were documents related to the bond deal that painted a picture of the city turning its back on minority firms, raised allegations that Grigsby had been unjustly edged out of the deal, and provided background indicating that Grigsby and Rice’s commission on the deal would double from $600,000 to $1.2 million if the two firms were on equal footing with Merrill Lynch.
At the Dec. 2 meeting, several councilmembers voiced their assumption that the package of documents had been sent by Martin. Martin later stressed to CL that he did not send them.
Also in the package was a three-page letter dated Nov. 12 and signed by Hubert Owens, the city’s contract compliance officer. The letter chastised the finance department for failing to elevate Grigsby and Rice to “equal co-senior managers” status and stated that the city “stands firm” with the minority contractors.
Eventually, CFO Glass agreed to go along with Martin’s suggestion, even though he had concerns that the deal could result in a higher amount of debt incurred by the airport. It’s imperative to select well-capitalized underwriting firms, he explains, because any bonds they fail to sell, they’ll be obligated to buy.
But there was still one major problem, Glass told Council on Dec. 2: When Glass finally showed Owens a copy of the letter on Nov. 30, Owens said he had no idea how it ended up in councilmembers’ hands.
“He showed me another letter and he said, ‘This is what I actually wrote and intended to send to you,’” Glass told Council, “I stepped back and said, ‘What is happening here? And at that point, I did some soul searching. I thought if we’re going to do something like this, I’m uncomfortable with proceeding the way I am.”
The next day, Glass handed all his documents over to the city’s law department, which launched an investigation. Contacted by CL, Owens declined comment for this story.
Glass acknowledges he went back on his initial agreement to elevate the two minority firms. He says he couldn’t issue the bonds in good faith on what he called the “insistence” of one councilmember.
Little did Glass know, Grigsby has faced numerous accusations of shady business practices. (None of those allegations resulted in convictions, however.)
In 1996, the California ethics board fined Calvin Grigsby $5,000 for laundering a campaign contribution to a Bay Area politician and for failing to make timely disclosures about another $53,000 in political donations.
In 1998, Grigsby was indicted on federal charges that he and two co-defendants stole $1.5 million in public funds from the Port of Miami. The judge, who dismissed the charges on a technicality, nonetheless castigated the defendants for the role they played in a broader pattern of misconduct. According to Grigsby, however, the ruling is tantamount to a full exoneration. “There was no rational basis for any guilt,” he wrote in an e-mail to CL.
Also in 1998, Grigbsy was indicted by federal prosecutors for allegedly doling out $350,000 in bribes to a Miami-Dade County commissioner and his aide to land a city bonding contract. The commissioner was convicted on the strength of secret videotapes and recordings, but Grigsby was acquitted.
When asked why he pushed so aggressively for the two minority firms, Councilman Martin told CL that, over the years, such firms have been under-represented in bond deals. When asked if he knew of the past legal actions against Grigsby, he said he was vaguely familiar with the accusations.
Martin claimed that Glass and Pigler “impugned my character” when they discussed his involvement in the bond deal during the Dec. 2 Council meeting. And he says it’s “regrettable, but maybe necessary” that a councilmember’s interest in minority business opportunities has raised eyebrows and sparked discussion.
Councilmembers are divided on the brouhaha. Willis, who stressed he wasn’t involved after Sept. 8, says he was unfamiliar with the intricacies of the deal. Councilwoman Felicia Moore called the confusion over the bond deal the “messiest mess I’ve ever seen.” Councilwoman Natalyn Archibong, on the other hand, calls the investigation that Glass requested “alarmist, salacious and inflammatory.” A report from the investigation is expected any day.
“I simply asked a few questions and made some strong recommendations,” Martin says. “Mr. Glass decides it’s some kind of scare tactic. He’s calling for an investigation. For all I know, Mr. Glass needs to be investigated. A bunch of these bond deals need to be investigated.”
Correction, 12-29-09: An earlier version of this story incorrectly stated that San Francisco-based investment broker Calvin Grigsby had been acquitted of 1998 federal charges that he bribed a Miami councilman. Instead, he was acquitted of bribing a Miami-Dade County commissioner.
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