Two on Toll Panel Sorry for Contract Flap

One day after a financial advisor bowed out of the running for a $150,000 contract with the Foothill/Eastern toll road agency, the agency’s chairman apologized to his board for not disclosing the man’s role in the Orange County bankruptcy.

At the same time, board member Todd Spitzer, also a county supervisor, proposed creating a finance advisory committee to avoid similar mistakes.

“This would be an outside body of experts that would screen the backgrounds of financial advisors,” he said. “I would hope that they would spot these issues and ask the right kinds of questions.”

Concerns regarding the agency’s hiring practices arose after Chairman Mike Ward and board member Susan Withrow recommended that the Foothill/Eastern Transportation Corridor Agency contract the firm of former investment banker Douglas S. Montague to advise them on the upcoming refinancing of $1.5 billion in revenue bonds. Despite having been told of Montague’s involvement in the county’s bankruptcy, neither disclosed it to two committees that endorsed their choice.

Several board members said they learned from published reports this week that federal regulators had fined Montague $35,000 three months ago for what they called his failure “to disclose information important to investors” in the county’s ill-fated investment pool.

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At the time of the bankruptcy, Montague was the lead municipal investment banker for Credit Suisse First Boston Corp., which underwrote a $320-million pension-bond offering that had failed to alert investors to the county’s risky finances, according to the Securities and Exchange Commission.

On Jan. 29, the commission ruled that CS First Boston, Montague and colleague Jerry Nowlin willfully violated federal securities law. The bank, which is being sued by the county, was fined $800,000. Montague signed a 15-page consent decree in which he did not admit guilt but promised to obey securities laws in the future.

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Late Wednesday Montague withdrew his firm from consideration for the contract, clearing the way for the toll road agency to offer it to another company Thursday.

“I take responsibility for this board being blindsided,” Ward said before voting to offer the contract to the Public Resources Advisory Group of Los Angeles. “I apologize. I have learned my lesson well.”

Ward said that the information about Montague’s background, disclosed to him and Withrow minutes before a joint meeting of the two committees that were to endorse the contract with the financial advisor, did not raise any red flags because it didn’t seem important.

“The whole thing has been blown way out of proportion,” he said. “He had no involvement at all in the Orange County bankruptcy. He just got caught up in it because he happened to be selling Orange County bonds.”

County Treasurer-Tax Collector John M.W. Moorlach, who is credited with warning the county about financial problems before the bankruptcy, has disagreed, describing CS First Boston as the “first domino” in Orange County’s financial collapse.

And Withrow, who also failed to tell fellow board members about Montague’s past, said she has learned her lesson.

“It was not presented in a criminal light and, in that context, it never registered on my radar screen,” she said. “I just never absorbed the potential political significance of this, and that was my error. In retrospect, I should have asked more questions.”

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To avoid such errors in the future, Spitzer said, he would like to see his proposed public finance advisory committee in place by August, the target date for the bond refinancing.

“We’re looking at innovative financing and I really feel that we need an objective body to make recommendations,” he said. “These are large dollar amounts we’re talking about--I think we need some very keen and sharp eyes involved with our next refinance.”