Golden – In the waning days of 2006, Jefferson County Treasurer Mark Paschall invested about $70 million in taxpayer dollars through an acquaintance.
The legality of four of the five investments – collateral mortgage obligations, or CMOs – has been questioned by county and state officials.
On Wednesday, Colorado Treasurer Cary Kennedy sent letters to county treasurers across the state asking that they review their portfolios to determine if they have CMOs that are in violation of a state law that became effective in August.
Faye Griffin, who succeeded Paschall as treasurer, said she learned of Paschall’s purchases – done without consulting the county’s investment officer – within days after taking office in January.
Griffin brought the situation to Kennedy’s attention. About $64 million is at issue.
Kennedy also has notified the broker – Capital Securities of America Inc. – that state law requires it to repurchase Jefferson County’s CMOs within one business day of the demand letter from Jefferson County.
No one was available to comment at Capital Securities in Hartville, Ohio, because it was closed Wednesday by the time Kennedy’s letter was made public.
“We couldn’t sell them today for what we paid for them,” said Jefferson County treasury officer Mark Hubbard, who has invested the county’s money for 15 years.
Hubbard said today’s value depends on what is happening in the market when they are sold.
“Mark liked these,” Hubbard said of Paschall’s support of CMOs, and purchased them through a securities dealer that Paschall met at a national conference in 2004.
Paschall, who was indicted this year for theft in an alleged kickback scheme involving a former top aide, said Wednesday that he had no comment.
Kennedy said that the attorney general’s office had advised her that because of a change in state law effective Aug. 7, 2006, CMOs can no longer be purchased by most public entities unless they are rated by at least two independent national rating agencies and at the highest level.
A CMO is a type of security that is mortgages pooled by quasi-governmental agencies such as Freddie Mac and Fannie Mae and repackaged for sale as bonds.
Public entities must divest themselves of such CMOs if they are made aware the purchase is illegal, Kennedy said.
The situation is “significant enough that (Kennedy) wanted to give people an opportunity to take a look at this,” said Eric Rothaus, deputy state treasurer.
“We are pleased to receive this letter from the state treasurer and the attorney general agreeing with our interpretation of the statute,” Griffin said. “There will be additional research into this matter.”
Hubbard said CMOs are “sound, safe investments” that earn about a 5.25 percent return, which “is in line with short-term things now.”
Treasurers have the prerogative to make investments, Hubbard noted, and Paschall has previous experience in securities.
Early in his term, Paschall would consult him about buying certain bonds as part of the county’s usual investment portfolio of $250 million to $300 million, Hubbard said, but few were bought.
Hubbard said he was on vacation when Paschall bought the CMOs in December and discovered the purchase when he came in to do some year-end work.
Griffin has consulted county attorneys and the district attorney about the situation.
“We communicated with Faye Griffin and the county attorney’s office regarding this issue,” said Jefferson County District Attorney Scott Storey. “I can’t really comment beyond that.”
Griffin also has directed that a policy be crafted to more closely guide county investments.
Staff writer Will Shanley contributed to this report.
Staff writer Ann Schrader can be reached at 303-278-3217 or aschrader@denverpost.com.
