Florida losing millions on risky investments

Three years ago, the state of Florida made bad investments that lost hundreds of millions in value. State leaders blamed the sharks of Wall Street, who they said duped Florida money managers into buying way-too-risky securities.

Chief Financial Officer Alex Sink pushed the state to sue big banks, which she said dumped tainted investments on Florida.

Gov. Charlie Crist demanded a no-holds-barred investigation and named four Wall Street firms that he suspected took advantage of the state.

Attorney General Bill McCollum wondered if there had been fraud and promised help with an investigation.

But no bank was prosecuted, no lawsuit was filed and there was never a full accounting of a financial debacle that could cost Florida governments and taxpayers hundreds of millions of dollars.

Now the St. Petersburg Times has obtained e-mails and internal memos that document a story at odds with the one told by Crist, Sink and McCollum, the elected officials responsible for oversight of the state's money managers.

The securities Wall Street ``dumped'' on Florida? The records show the state was anything but an innocent dupe; it was an eager partner.

Going back at least seven years, state money managers had been trying to find a way around rules that restricted them from buying certain risky securities. Time and again they asked, time and again lawyers told them no.

But so eager were Florida's money managers for higher yields, they bought them anyway. In two months at the brink of the housing market meltdown in 2007, the state invested at least $9.5 billion in securities it was not authorized to buy, a review of confidential memos shows.

``Florida can't say it got snookered,'' said Peter Henning, a Wayne State University law professor and securities law expert, when told what the documents said.

``They were chomping at the bit to buy risky securities. These weren't lambs being led to the slaughter. They weren't fooled. They seemed to go along quite happily.''

What happened?

The State Board of Administration invests more than $140 billion of public money, most of it for the state retirement system. It also manages a fund that pools money from hundreds of Florida towns, counties and school districts.

As of June 30, 2007, the local pool totaled $31 billion, making Florida's the country's largest such fund.

But with the collapse of financial markets and revelations of troubled investments, hundreds of the local clients withdrew billions from the pool. Today it holds less than $6 billion.

Beyond the lost dollars, beyond eroding trust in government, the state's perilous investing aggravated already-strained budgets and put holds on construction of schools, roads, sewers and firehouses across the state. It forced school districts to take out loans to pay teachers.

``I would never invest in the SBA again,'' said Marcia Dedert, finance director of Port St. Lucie, which had to borrow money to finish some roads. ``In my mind, they robbed the citizens of my city.''

It's hard to calculate the costs of the risky deals that went awry. The SBA refuses to recognize any loss for local governments. The agency says it has made many positive changes and its goal is to make its clients ``whole.'' But if the bad securities were sold today, taxpayers could be out more than $300 million.

Ashbel C. Williams Jr., who replaced the SBA director who presided over the fiasco, said the agency and its employees did not violate federal securities laws.

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