|By G. Michael Dobbs|
SPRINGFIELD By the time this story sees print, the $13.5 million of city funds lost through illegal investments by Merrill Lynch will be back in the city's coffers and on their way to re-investing in the Massachusetts Municipal Depository Trust.
In a major reversal of fortune, representatives of Merrill Lynch agreed on the evening of Jan. 31 in Boston to return the $13.4 million the city lost, plus it will receive $150,000 used to hire a law firm to pursue the case against the investment bank and over $500,000 in lost interest.
Mayor Domenic Sarno called the outcome of the negotiations " a victory for the city of Springfield."
Two members of the Finance Control Board YMCA of Greater Springfield President James Morton and City Councilor Bud Williams City Solicitor Edward Pikula, and City Councilors Kateri Walsh, James Ferrera III and Jose Tosado joined Sarno at the press conference.
Sarno said the city did not have to give up any of its legal rights in order to receive the reimbursement.
"Let's be clear, this is not a settlement. Merrill Lynch still needs to account to the Commonwealth for its conduct in this matter," Sarno said. "However, two months ago Merrill Lynch told the city that it had to make its own investment decisions and Merrill Lynch has now acknowledged that the purchases of these securities were made without express permission of the city. Merrill Lynch has now done the right thing.
"It's been an agonizing two months," Sarno said, referring to the time that has passed since the loss of over $13 million was revealed.
When Pikula was asked if Merrill Lynch representatives had apologized for the illegal transaction, Pikula said, "We weren't looking for an apology."
Sarno quickly interjected, "We were looking for the cash."
An audit of the way the city makes investment decision by State Auditor Joseph Di Nucci will continue, Sarno added.
"We don't want this to occur again," he emphasized.
City Councilor Walsh a member of the Finance Control Board when the loss was revealed said she had been "totally in the dark" about the loss until it had publicly announced in December. She said there are questions that still need answers and she wondered why government officials had not been notified when the financial reports had indicated a loss.
Pikula said "appropriate inquiries" in the Ryan Administration began in September 2007 when the city received the financial report for August and there was a loss noted.
With the return of the money, Sarno said the city will be better prepared to work toward a more favorable payback schedule of the $52 million loan given by the state and the city will be in a more favorable position to have its bonding status re-evaluated.