Unlike Springfield, Lynn municipal funds invested with low risk

LYNN – The loss of nearly $13 million in municipal funds in Springfield, blamed on poor decision making by city officials and a pair of Merrill Lynch agents, has left communities across the state taking a harder look at their investment portfolios.Although state Attorney General Martha Coakley’s office ordered the brokerage firm to reimburse the city of Springfield, the eight-digit loss remained cause for alarm.Springfield finance officers invested $13.9 million in surplus funds with Merrill Lynch in spring 2007, including $12.6 million in a murky fund known as Centre Square CDO, based in the Cayman Islands and Delaware. By the end of November, the investment value had nose-dived to a mere $1.2 million.The loss was so startling Secretary of State William F. Galvin subpoenaed the two Merrill Lynch agents handling Springfield’s municipal accounts.Richard Fortucci, the city treasurer and chief finance officer in Lynn, said the likelihood a similar situation could occur here is almost non-existent.”We just don’t do any such thing. We don’t have enough available cash to go out and start investing,” he said.Most of Lynn’s municipal funds are entrusted to the Mass Municipal Depository Trust (MMDT), and Fidelity Investments is employed as the vendor to provide banking services. Other funds are deposited with Eastern Bank.”What we have is equivalent to a money market. Today, most banks will give 4-5 percent, or maybe a little less, depending on the rate, which is the same as the MMDT. We don’t have any risky investments. In fact, each quarter, we can’t wait until those cherry sheets come from the state,” said Fortucci, referring to annual state aid doled out to cities and towns.Fortucci noted that the city is able to access any of its funds within 24 hours. “The point is, we can get to our money quickly should we need it,” he said. “I was surprised by the Springfield case because they have a financial oversight board that works with the state, and $12 million is a lot of money. We just can’t take a risk like that with taxpayer dollars.”Fortucci speculated the Springfield loss went undetected because of special legislation previously enacted to address the city’s financial problems. “They might not be running in the normal mode of business,” he said.Fortucci stressed that Lynn does not deposit funds in Fidelity Investments. “Fidelity merely provides banking services,” he said. “In some respects, it works like a mutual fund, but we don’t even have CDs (certificates of deposit). We don’t even tie up our money for 30 days. It is just kept in accounts that give us the prevailing money-market rate.”Merrill Lynch employees Carl J. Kipper and Manuel Choy, both wealth management advisers, were named in the subpoenas as the men who sold the investments to Springfield. The company has claimed Springfield officials approved the investment strategy.Springfield found out the hard way, and initially it appeared the city would have to swallow the loss. A Merrill Lynch lawyer in late November informed Springfield officials the company had no legal responsibility regarding the performance of the investment.In February, Springfield Mayor Domenic J. Sarno and Springfield Finance Control Board Chairman Chris Gabrieli joined Coakley in announcing that Merrill Lynch would reimburse $13.9 million in cash, the full original purchase price of CDO investments. Merrill Lynch also agreed to pay the legal fees incurred by the Finance Control Board in retaining outside counsel.