http://www.newsobserver.com/701/story/418671.html
March 16, 2006
Durham officials should be wary of doing business with a financial company embroiled in a California bribery scandal, a prominent Duke University law professor says.
(snip)
Howard Clement III (and frequently seen in the company of Mike Nifong, btw) the council member who has been pushing hard for Rice, says the company should be considered innocent of the accusations until proven guilty.
(But he doesn't feel that way about the lacrosse players...)
"People sue each other every day," said Clement, a retired lawyer. "Being sued doesn't make them guilty of anything."
Durham deal proceeds
Author: Michael Biesecker; Staff Writer, News & Observer, The (Raleigh, NC), June 6, 2006
DURHAM -- In a 5-2 vote Monday, the Durham City Council awarded a no-bid contract to restructure $107 million in municipal debt with a New York financial firm mired in a California lawsuit over bribes paid to public officials.
Rice Financial Products Co. estimates the transaction, which "swaps" the interest rates paid by the city with those paid by private borrowers, could save Durham taxpayers up to $4 million in payments over the next 15 years. The transaction would also award **about $700,000 in fees to Rice, as well as another $100,000 to a city consultant and $40,000 in attorneys' fees.**
However, the transaction comes with risk. Kenneth Pennoyer, the city finance director, said that if there was a "worst case scenario" where if interest rates go too high or too low and federal tax laws change, Durham could incur "negative savings," or losses, of up to $14 million. Pennoyer classified the odds of that scenario as "remote."
In a final plea for their colleagues to change their minds, holdout council members Eugene Brown and Diane Catotti said the potential savings are not worth the risk -- especially considering the unresolved suit against Rice filed by a Los Angeles-area utility over a pair of similar rate swaps enacted in 2001 and 2003.
The West Basin Municipal Water District filed a lawsuit against Rice, Chief Executive Officer Don Rice and others involved in the deals after two commissioners on the public utility's board pleaded guilty in federal criminal court to accepting bribes to vote in Rice's favor, after an FBI investigation. The water district is seeking release from its transactions with Rice, which total $231 million, as well as millions in damages.
Rice is a small company with fewer than 30 employees, and some worry a big judgment could bankrupt it -- leaving the city to collect its money from The Bank of New York, which is insuring the transaction. The case goes to trial in October.
"In my judgement, this city needs to have some standards," Brown said. "This is not our finest hour."
In its legal filings, Rice has said it had no knowledge of the bribes paid by a political consultant working on the company's behalf. No Rice employee has been charged with a crime.
Council member Thomas Stith, who voted to support Rice, accused Brown of overstating the risk to taxpayers.
"I'm hearing a little bit of fact and a whole lot of alarmism," Stith said. "Let's look at all our vendors and see who has been sued. I think we will be surprised."
Stith pointed to the $868,818 savings reaped by Durham County, which enacted a $126 million rate swap in 2004. Brown countered that Rice had originally estimated that the county's swap would yield $1.2 million a year. So far, in more than two years, the county has earned $868,818 -- less than half of Rice's projections.
"On this issue, and with this firm, I am very proud to be an alarmist," Brown said.
** Damn good business to be in.