We're Setting Trends Again

In the late 1980s, the name Charlie Keating became a national symbol of fraud within the S&L industry.

Now, in 1996, Maricopa County itself has become a national symbol--of municipal-bond securities fraud.

In an October 28 story headlined "Miami Inquiry Becomes 'Son of Maricopa,'" the Wall Street Journal reported that regulators at the U.S. Securities and Exchange Commission have noted striking similarities between Maricopa County's financial crisis and an ongoing investigation into bonds sold by the city of Miami in 1995.

Months before other media and many government officials caught on, New Times reported that Maricopa County was at least $100 million in the red. New Times also reported that county supervisors and their financial advisers might have committed a federal crime by failing to disclose the county's financial predicament in "official statements" made to investors at the time of bond sales in 1993 ("Playing the Market," August 18, 1994).

Recently, the U.S. Securities and Exchange Commission concurred.
In September, the SEC announced its decision that Maricopa County had, in fact, violated disclosure rules when it failed to reveal that its financial condition had substantially worsened between the time it prepared balance sheets for fiscal 1991-92 and the time of bond sales in 1993. The bond sales, which took place in July and August 1993, totaled almost $50 million: $25.575 million worth of ten-year general obligation project bonds and $22.25 million worth of four-year general obligation refunding bonds.

The Journal characterized the SEC's action in the Maricopa County case as "one of its most important rulings yet in its three-year probe of abuses in the $1.3 trillion municipal-bond market."

In its administrative finding, the SEC reported that Maricopa County officials released the June 1992 financial figures without mentioning that Maricopa County had developed a staggering General Fund deficit and that the deficit in its Maricopa Medical Center fund had nearly doubled.

The administrative finding also reported that the county used funds from bond sales to finance its operating deficit, although investors were told the funds would be used to finance specific county projects.

"Each of the omitted items . . . would have been important for an investor to consider in deciding whether or not to purchase the County's bonds because they tended to bear upon the County's financial condition at the time the bonds were issued," the SEC reported.

In fact, after the bonds had been sold, they were downgraded from AA to A, meaning that the purchasers got a poorer return. Some bondholders talked to attorneys about filing a lawsuit over the erroneous official statement, but none materialized.

The SEC struck a deal with Maricopa County and its former financial adviser, the firm Peacock, Hislop, Staley & Given. County officials promised they never again would misrepresent the county's financial status. Peacock, Hislop, Staley & Given agreed to pay $50,000, with no admission of wrongdoing; Larry Given, the firm's partner who handled the county's account, paid $25,000, again with no admission of wrongdoing.

Repeatedly, county supervisors and Given--whose firm signed off on the official statements--have said they were unaware of the county's financial standing at the time of the bond sales.

But if county supervisors weren't aware that something was amiss, they weren't paying attention. Any interested supervisor would have known in July 1993 that:

* County Treasurer Doug Todd had discovered that the county's finance staff was cooking the books, and that tens of millions of dollars of debt had built up.

* The supervisors had been asked repeatedly to move funds around to cover operating shortfalls.

* The very day that the supervisors approved one of the bond sales, they also were asked to approve a staggering $128.8 million in short-term debt, including $25.5 million in bond sales, so the cash could be used as a loan to the General Fund.

County Supervisor Betsey Bayless, who also happens to be a vice president of Peacock, Hislop, Staley & Given, says that because she recused herself from votes involving the bond deals, she had access to even less information about them than her fellow supervisors (though she certainly had data on the county's dismal finances).

"I was precluded from being involved in it from the county standpoint, and I was precluded from being involved in it from the Peacock standpoint. So I just wasn't involved in it," Bayless says.

"So I guess I feel like I shouldn't comment on having an opinion on what happened thereafter."

Christopher Taylor, spokesman for the Washington, D.C.-based Municipal Securities Rulemaking Board (which regulates the behavior of dealers in municipal securities, with similar authority to the New York Stock Exchange), says that--despite the intricate financial dealings--this case is quite simple.

"The securities laws have always said you cannot lie," Taylor says. Lie, and you've broken the law.

The Maricopa County case "has certainly made people aware of the need to have accurate financial statements out there to review," Taylor adds.

"You wouldn't want to go into the supermarket and not know how fresh the bread is," he says.

KEEP PHOENIX NEW TIMES FREE... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
Amy Silverman is a two-time winner of the Arizona Press Club’s Journalist of the Year award. Her work has appeared on the radio show This American Life and in the New York Times, the Washington Post, Lenny Letter, and Brain, Child. She’s the co-curator of the live reading series Bar Flies, and a commentator for KJZZ, the NPR affiliate in Phoenix. Silverman is the author of the book My Heart Can’t Even Believe It: A Story of Science, Love, and Down Syndrome (Woodbine House 2016). Follow her on Instagram (@amysilverman), Twitter (@amysilvermanaz), and at