Candor and transparency are two traits still missing from the state agency that oversees billions of dollars of Florida investments. It turns out the State Board of Administration has been under federal investigation for more than a year into whether its employees may have been collaborating with Wall Street firms that sold the state some $2.3 billion in risky securities before the mortgage market collapsed in late 2007. That should have been fully disclosed to taxpayers and to the local governments that trusted the SBA to invest their money.
SBA trustees — Gov. Charlie Crist, Attorney General Bill McCollum and Chief Financial Officer Alex Sink — claim they have been kept abreast of the situation. But the disclosure further amplifies the need to overhaul oversight of the SBA. The trustees apparently never demanded that all local government members of the SBA fund in question — the Local Government Investment Pool — be notified. Some local government officials, already burned once by SBA losses in 2007, told the St. Petersburg Times this week they had no idea about the scope of the SEC investigation. They should have been fully informed.
A March 2008 memo from then-interim executive director Bob Milligan characterized the SEC's investigation into the SBA as one of several "detailed public records and other information requests" the agency had received since the mortgage meltdown. But in October 2008, the SBA learned that an SEC commissioner had authorized a formal investigation into the relations between the SBA and three Wall Street firms that had sold the SBA risky mortgage-backed securities: JPMorgan Chase, Credit Suisse and Lehman Brothers.
The formal investigation notice was one of several documents the Times obtained Thursday as part of a public records request. The SBA quickly tried to spin the disclosure as old news, saying the SEC's formal investigation order was a mere formality. It claimed it had not released the information in October because the SEC said it was confidential but released it now because the newspaper asked for documents under the public records law. That is double-talk to justify a pattern of obfuscation and stonewalling.
The SBA had an obligation to inform the local governments that trust it to prudently invest public money. In fact, a 2008 audit of the agency on behalf of the Legislature made that point after it became clear the agency misled investors during the 2007 mortgage collapse by telling them the SBA had little exposure to subprime mortgages.
The auditor's recommendation: "Make it clear to members of SBA senior management that it is their duty to timely disclose material information to participants."
Two years later, the agency still has not embraced a culture of transparency, suggesting the need for more sweeping reform. Next month, the trustees are set to discuss Sink's proposal to expand oversight of the SBA beyond three elected officials. It's an idea that is long overdue, but the entire culture needs an overhaul as well.