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The Great Bank Thievery 

The city and state say the Bank of America stole hundreds of millions -- even billions -- of dollars from the government. But didn't San Francisco finance officials know what was going on? And shouldn't B of A executives be under criminal investigation?

Wednesday, Dec 31 1997

Page 4 of 6

But BofA has a different story. BofA blames publicly elected treasurers, statewide, for not being able to document exactly how much the bank owes. The bank claims that the treasurers were supposed to bill the bank for unclaimed bond funds. Furthermore, insists BofA, public officials signed off on the very fee and investment transactions that now are being questioned.

Court exhibits and records obtained from the San Francisco city treasurer's office support many BofA claims. Those records show that San Francisco's treasurer received daily, monthly, and annual reports from BofA. Trust account operations were broken down to small details, and periodically summarized.

Three boxes of BofA invoices and trustee reports show that the city treasurer's office approved at least some of the types of transactions that the city attorney is now holding up as proof of massive theft. For example, Stull alleges that exorbitant billings for "miscellaneous" trustee fees were often false BofA claims. Yet BofA invoices with lump-sum $90,000 fees labeled as "miscellaneous" were routinely OK'd by the San Francisco Treasurer's Office.

Court pleadings filed in Stull allege that BofA regularly billed for interest payments on bonds that had expired. BofA invoices show that the San Francisco Treasurer's Office made these types of payments without complaint.

City Treasurer Mary Callanan and City Controller Edward Harrington declined to comment on these issues. On the other hand, the city's independent auditors, KPMG Peat Marwick, LLP, have not been silent. Peat Marwick has been telling San Francisco's treasurer and controller to clean up their acts for a decade -- to no avail. Like BofA, the treasurer and controller have blamed their problems on "computers."

And they have certainly had problems.
On March 30, 1997, Peat Marwick released an audit that damned the city's internal financial controls. City officials responded with silence.

"Historically," the auditors wrote, "the Treasurer's Office and the Controller's Office have experienced difficulty in preparing the monthly and year-end bank reconciliations and developing the information required for financial disclosure." The auditors reported that the city's general accounting ledger does not balance, and that the treasurer and controller are not accurately tracking billions in city bond and investment funds.

In 1995, an internal audit released by City Controller Harrington criticized Callanan for "failing to review and monitor [the city's] relationship with BofA."

In June 1997, Bank of America attorneys happily agreed. "Had the responsible San Francisco city officials reviewed monthly accounting statements prepared by the Bank," they wrote, "the Bank's investment in money market mutual funds would have been readily apparent to these officials."

And those "excessive" fees, the attorneys declared with some hint of sarcasm, were approved, too. "Issuers received monthly accounting statements which showed the exact amount of the fee," a BofA court filing says. "The Bank urges City Attorneys to check with their City Treasurer. We believe these officials were fully aware [of the content of] the fees being charged."

One BofA lawyer, Matthew L. Larrabee, put it more elegantly: "The core of the city's allegations damn the city."

Faced with tons of documents and dozens of high-priced squabbling lawyers, Superior Court Judge A. James Robertson II has split the mammoth Stull case in two. An April trial will address the question of how much money the bank owes -- or does not owe -- for unclaimed bond funds. A September trial will take on the subjects of false claims for fees and alleged self-dealing by BofA.

Attorneys on both sides say that the April trial will set precedents for later battles. The future of the case is being determined right now, as each side marshals its arguments. All the players agree: April will be the Waterloo of one side or the other.

Sometime after the April hearing, Judge Robertson will rule on whether BofA's bond trustee accounting records are reliable enough to be used in calculating possible BofA debts to the state and other governments. The judge has hired a certified public accountant, Francis Callahan, to help assess the accuracy of the records.

The 200-plus plaintiffs in the Stull case maintain that the accounting issue is relatively simple. The bank's records, they say, are bogus; all the audit trails showing that BofA improperly seized unclaimed bond funds have been destroyed. The amount of money the bank owes should, therefore, be calculated by using a benchmark -- 1 to 3 percent -- relating to the amount of bond funds that go unclaimed, industrywide. And that calculation should be tripled, as allowed under the whistle-blower law, giving Stull and the governments that have joined his lawsuit billions of dollars in damages.

But if Judge Robertson rules the bank's trustee records are coherent, he will use those records to determine how much money the bank does or does not owe for unclaimed funds. The plaintiffs fear this latter scenario like death because, they say, the existing bank records do not show the huge amount of bond funds that allegedly were embezzled through the years.

On the other hand, if the records are deemed unreliable, a jury will be impaneled to assess monetary damages owed by Bank of America. BofA's pleadings make clear the bank is eager to avoid a jury trial: "The enormously complex accounting issues would confuse the jury."

Nobody knows which of the 600 million BofA records Judge Robertson and his expert accountant will review as they struggle to decide if the bank's accounts are real or faked. As those documents are reviewed, the two main government attorneys involved in the whistle-blower case remain busy -- snarling at one another.

From the start of the Stull case, Attorney General Dan Lungren, a Republican, and City Attorney Louise Renne, a Democrat, have differed over fundamental strategy. According to Deputy City Attorney Mahoney, Renne wanted to put all of her eggs in the hands of accounting experts. Lungren, convinced BofA had eliminated the paper trail that accountants would need to calculate damages, preferred the industry benchmark approach.

About The Author

Peter Byrne


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