COMPLETE TEXT OF STATEMENT OF JEFFREY LEIFER PROVIDED TO THE CALIFORNIA
STATE SENATE SPECIAL COMMITTEE ON LOCAL GOVERNMENT INVESTMENTS
LOS ANGELES, Jan. 17 /PRNewswire/ -- The following is the complete text of
testimony delivered today by Jeffrey Leifer, president of Leifer Capital,
before the California State Senate Special Committee on Local Government
STATEMENT OF JEFFREY LEIFER OF LEIFER CAPITAL PROVIDED TO THE
CALIFORNIA STATE SENATE SPECIAL COMMITTEE ON LOCAL GOVERNMENT INVESTMENTS
Dated: January 17, 1995
A. Mr. and Madame Chairpersons, distinguished members of the Committee and
Staff, ladies and gentlemen:
I am Jeffrey Leifer, President of Leifer Capital. We recognize the
importance of the Committee's work today in attempting to prevent the same
financial catastrophe experienced by Orange County from repeating itself at
We are pleased to cooperate in this effort, and I am voluntarily appearing
today to do so.
B. Over the past several weeks much has been written in the public media
concerning the role of Leifer Capital in assisting Orange County with its
1994-95 note borrowing program. There has been substantial misinformation and
speculation in certain of those public press reports. I am pleased to have the
opportunity today to set forth the facts.
Leifer Capital's Role:
Leifer Capital serves as a consultant in municipal finance, particularly to
counties located throughout California. In this capacity, the Firm assists
counties and agencies in arranging borrowings and negotiating interest rates
We are NOT Investment Advisers -- we did not advise Orange County as to its
investment strategies, policies or decisions.
WE are NOT, and do NOT serve as a Broker-Dealer or Underwriter. We did not
sell securities FOR or TO the County.
We are NOT Lawyers -- on every Orange County note financing in which we
acted, nationally prominent law firms with expertise in public finance served
as Bond Counsel and as Disclosure Counsel. Disclosure Counsel was retained to
prepare and provide advice as to the legal adequacy of disclosure documents.
We are NOT Auditors. We were not retained to verify the accuracy of the
County's financial information.
And we are NOT credit analysts. All of Orange County's 1994-95 Notes were
reviewed by the two leading national bond rating agencies, and each NOTE
received the highest rating.
B. Leifer Capital's Services to Orange County.
Leifer Capital was hired for Orange County as a financial and marketing
specialist and consultant on the borrowing side only for the Note borrowing
program. We were not a general, overall "financial adviser" to the County or
to the Treasurer's Office.
1. As to the investment strategies pursued by the County's Investment
Pool, and the decisions to engage in leveraged transactions or to purchase
derivative instruments, Leifer Capital played absolutely no role.
Let me repeat: Our firm played no role in, and had no responsibility for
those investments, the selection of Instruments for the Pool, or the County's
So what did Leifer Capital do?
2. One of our primary roles and responsibilities, as it is for all of our
clients, was to assist Orange County in negotiating the most appropriate rate
for its note borrowings with its underwriters. This service adds the single
greatest value to the counties and taxpayers we serve. Interest costs on
borrowings are by far the single greatest expense in any county's borrowing
Many issuers consider this a necessary and important service. In our view,
underwriters have dual responsibilities: to their investor customers, who
seek the highest appropriate yield; and at the same time to their borrowing
client to obtain the lowest appropriate rate. We believe that the counties we
serve benefit from a knowledgeable fighter on their behalf to oversee this
marketing and pricing process.
3. Leifer Capital also facilitated and administered Orange County's note
borrowing program in certain respects, and undertook a number of the
administrative tasks necessary to complete borrowings.
For each Orange County note financing, a team of professionals was involved
-- each given particular responsibilities by the County. Additionally, outside
relevant parties -- particularly the credit rating agencies -- were necessary
participants. Under the direction of the County, Leifer Capital assisted in
facilitating the flow of certain information from the county to other
participants and in generally coordinating the work of the team.
We also assisted in better informing the County's judgment as to the timing
of financings and alternative debt characteristics by monitoring the borrowing
market and providing information to the County on Investor demand for these
notes as well as the supply of competing securities in the marketplace.
I now want to turn to our Firm's role in the disclosure process for the
Orange County note borrowings at issue. First and foremost, a fundamental
point: the Official Statements and other disclosure documents represent the
County's disclosures. All County financial information came from the County,
as is always the case. And, the County certified that the Official Statements
contained no material misstatement and did not omit any material fact.
The Official Statements also included audited financial statements audited
and certified by an independent, national Big Six accounting firm. Those
financial statements included, in a footnote, disclosure and discussion of the
Treasurer's Investment Pool, and this discussion was cross-referenced
throughout the Official Statements.
Leifer Capital is not an auditing firm, as I have said, and we were not
retained, and would not have had the capacity to, independently verify this
On every Orange County note financing, Disclosure Counsel was retained to
prepare the disclosure documents and to render advice to assure compliance
with applicable law. And ultimately, Disclosure Counsel provided a legal
opinion as to the disclosures.
All members of the finance team, including Leifer Capital, received and
reviewed drafts of the Official Statement from Disclosure Counsel. Thus, at
different stages in the process, these drafts were reviewed by:
-- County Counsel
-- The County Auditor's Office.
-- The County Treasurer's Office, which was directly involved in the
drafting of these documents and ultimately certified the accuracy of the
-- Bond Counsel, which reviewed the draft disclosure documents and issued a
written opinion as to the legality and appropriateness of the borrowing under
-- Disclosure Counsel, whose role has been discussed; and
-- The Underwriters for each of the particular note borrowings.
Additionally, independent rating agencies -- Standard & Poor's and Moody's
-- evaluated the creditworthiness of each financing. Both of these agencies
independently gave each note its highest rating available for municipal note
As a result of this process, additional disclosures concerning the Pool were
made. Ultimately, it was the judgment of both Disclosure Counsel and the
County that these disclosures were adequate. We relied on that judgment.
We now read in public press reports that at least one underwriter on some of
the note transactions claims to have privately warned the County of perceived
risks in the Investment Pool. That underwriter apparently identified these
risks based upon that firm's experience in having sold the securities to the
County. I did not know of any of these alleged warnings; I was not advised
of or given a copy of any of the documents which apparently included these
I understand that the concerns of this Committee focus on an effort to
formulate a legislative response to the financial catastrophe in Orange
County. There are obvious issues concerning limits on the investment of
public funds, expanding the audit of Investment Pools, or perhaps requiring an
independent investment adviser, not the seller of the securities, for
investments above a certain range or of a certain type. While these issues
are obvious, other individuals directly involved with county investment
policies that would be far better informed to address the need for such
But from my years in providing services to public agencies on the borrowing
side, I can offer a couple of brief thoughts as to possible legislative
responses. First, I do not believe that an appropriate response would be to
drive from the process the independent financial adviser or financial and
marketing specialist. It does not serve the interests of the counties or
their taxpayers to remove the strongest pricing advocates local governments
have or to permit underwriters to act in that capacity.
Additionally, over the years, I have been in the forefront of designing and
recommending to my municipal clients the establishment of debt advisory
committees, an inter-disciplinary, inter-departmental committee to offer
oversight for both note and bond financings. Despite Mr. Citron's reputation
for competence, professionalism and integrity, such a committee may have been
I thank you for your time.
/CONTACT: Steven D. Stern of Stern and Co., 310-442-8414/