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

Investments:  

        STATEMENT OF JEFFREY LEIFER OF LEIFER CAPITAL PROVIDED TO THE

  CALIFORNIA STATE SENATE SPECIAL COMMITTEE ON LOCAL GOVERNMENT INVESTMENTS


  Dated:  January 17, 1995

  Introductory Remarks:

  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

other counties.

  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:

  A.   General.

  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

with underwriters.

  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

Investment strategies.

  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

program.

  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.

  C.   Disclosure:

  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

financial information.

  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

disclosures.

  -- Bond Counsel, which reviewed the draft disclosure documents and issued a

written opinion as to the legality and appropriateness of the borrowing under

applicable law.

  -- 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

issues.

  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

supposed warnings.

  Conclusion:

  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

responses.

  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

helpful here.

  I thank you for your time.

  /CONTACT:  Steven D. Stern of Stern and Co., 310-442-8414/