Posted on Tuesday, July 27 2010 by Heather Brandon
Former Springfield Control Board Executive Director Stephen Lisauskas violated the state conflict of interest law, according to an announcement today from the Massachusetts State Ethics Commission. He paid a $3,000 civil penalty related to his work finding brokerage firms to handle the city’s investments. The finding can be downloaded here (PDF).
The violation relates to the loss of a $13 million municipal investment with Merrill Lynch in 2007 after the cash was illegally invested in mortgage-backed securities that lost all their value. The investment was eventually recovered, but questions lingered over whether Lisauskas treated potential brokerage firms fairly because of a friendship connecting him to one of the firms.
One of Lisauskas’s errors was a failure to file a written disclosure of his prior relationship with the broker, Carl Kipper, “to dispel [the] appearance of impropriety.”
+ + +
Former Springfield Finance Control Board Executive
Director Stephen Lisauskas Pays $3,000 Civil Penalty
for Conflict of Interest Law Violations
The State Ethics Commission approved a Disposition Agreement (“Agreement”) in which former Springfield Finance Control Board (“SFCB”) Deputy Director Stephen Lisauskas (“Lisauskas”) admitted to violating G.L. c. 268A, the conflict of interest law. Pursuant to the Agreement, Lisauskas paid a $3,000 civil penalty.
According to the Agreement, Lisauskas served as the SFCB Deputy Director from June 2006 until he was appointed Executive Director in July 2007. In September 2006, Lisauskas formed a committee to select an investment firm to manage the City of Springfield’s (the “City’s”) approximately $100 million in cash investments. Three investment firms were invited to be interviewed, one of them being the Albany, New York office of Merrill Lynch (“Merrill Lynch”). This firm employed Lisauskas’ friend, Carl Kipper, with whom Lisauskas had regularly socialized when he resided in the Albany area, and with whom he kept in contact when Lisauskas moved to Massachusetts. Lisauskas orally disclosed a relationship with Kipper to the SFCB Executive Director and the committee members, but he did not disclose that they were friends, and he did not file any written disclosure of the friendship with the committee or with his appointing authority.
The Agreement states that Lisauskas told the committee members that he and Kipper had worked together planning investments for the Town of Natick when Lisauskas was Natick’s deputy town administrator. In fact, Kipper had no public investment experience in Massachusetts, and neither Kipper nor Merrill Lynch had ever managed any money for the Town of Natick. In addition, Lisauskas developed the interview questions for the committee to use, and he provided information about the questions to Kipper in advance of the interviews. Following the interviews, the committee, with Lisauskas participating, decided to give Merrill Lynch approximately 60% of the City’s investment money to invest on the City’s behalf. Merrill Lynch subsequently invested approximately $13 million in risky, mortgage-backed securities which were not on a so-called “legal list” of investments, i.e., the types of investments in which public monies may be invested under Massachusetts law. Those securities lost nearly all of their value. In January 2008, Merrill Lynch agreed to reimburse the City $13.7 million to cover the City’s investment losses and legal fees.
Section 23(b)(2) of the conflict of interest law prohibits a state employee from knowingly, or with reason to know, using or attempting to use his official position to secure for himself or others unwarranted privileges or exemptions which are of substantial value and which are not properly available to similarly situated individuals. Lisauskas violated section 23(b)(2) by using his position as SFCB Deputy Director to engage in the above-described conduct, which resulted in Kipper and Merrill Lynch being selected to manage approximately $60 million of the city’s investment money.
Section 23(b)(3) prohibits a state employee from knowingly, or with reason to know, acting in a manner which would cause a reasonable person, having knowledge of the relevant circumstances, to conclude that any person can improperly influence or unduly enjoy his favor in the performance of his official duties, or that he is likely to act or fail to act as a result of kinship, rank, position or undue influence of any party or person This section further provides that it shall be unreasonable to so conclude if such officer or employee has disclosed in writing to his appointing authority the facts which would otherwise lead to such a conclusion. The Agreement states that Lisauskas violated section 23(b)(3) by participating as SFCB Deputy Director in the interviews and the decision to award Merrill Lynch approximately $60 million in cash investments while his friend, Kipper, was a vice-president/broker for one of the competing firms. Lisauskas did not file a written disclosure with his appointing authority to dispel the appearance of a conflict of interest.
“Public employees may not use their positions to steer public business to friends,” stated Executive Director Karen L. Nober. “In addition, public employees must properly disclose their personal relationships to their appointing authority before participating as a public employee in matters affecting those with whom they have such relationships.”