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Uploaded: Friday, February 1, 2013, 10:08 AM
Court denies schools recovery of $20 million in losses from Lehman Brothers bankruptcy
School districts lost some $20 million in investments with Lehman Brothers bankruptcy
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by Renee Batti
Almanac Staff
A state appeals court on Thursday (Jan. 31) approved the dismissal of a lawsuit brought against San Mateo County by 12 county school districts – including the Menlo Park City, Las Lomitas, Portola Valley and Woodside districts – over the collective loss of about $20 million in investments resulting from the 2008 Lehman Brothers collapse.
The districts sued the county and its treasurer at the time, Lee Buffington, in January 2011, claiming that the county failed to act "with care, skill, prudence and diligence" in managing the county investment pool that school districts are required, for a substantial fee, to put their bond revenue and other working funds in.
Other public agencies in the county, and the county itself, had funds in the investment pool, which lost a total of about $155 million with the Lehman Brothers bankruptcy.
The appeals court ruled that the county's investment decisions are "discretionary activity which should not be the subject of scrutiny and second-guessing," according to a press release from the county.
Of the local school districts that joined the legal action, the Menlo Park City School District took the biggest hit by far: It lost nearly $4 million. The Ravenswood School District lost about $854,500; the Las Lomitas district, almost $400,000; the Portola Valley district, nearly $150,000; and the Woodside district, about $100,000.
The Sequoia Union High School District, which didn't participate in the lawsuit, lost about $6.5 million.
The school districts' actions were led by the county Office of Education, headed by Superintendent Anne Campbell.
The lawsuit asserted that the treasurer's office violated state and county investment policies; failed to adhere to legally required prudent investment practices; failed to properly diversify the $155 million in investments "among sectors of the economy"; and failed to sell the Lehman notes "after learning of deterioration in the finances, credit rating, and stock price of Lehman."
After filing the claim two years ago, Superintendent Campbell told the Almanac that her office, school district representatives and the county had been working together for nearly two years to find ways to recover the money, but that the talks didn't yield satisfactory results. She said the districts not only wanted their money back, but want "to be sure that the policies of the county investment pool have been changed to make sure this doesn't happen again."
In November 2011, a San Francisco Superior Court judge dismissed the lawsuit, ruling that the county and its treasurer were immune from civil suits. The appeals court was asked to review the decision.
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Posted by Jack Hickey, a resident of the Woodside: Emerald Hills neighborhood, on Feb 1, 2013 at 12:34 pm How many of the school districts were expecting a hefty return on investment of tax-exempt bond proceeds?
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Posted by Bill, a resident of the Portola Valley: Central Portola Valley neighborhood, on Feb 1, 2013 at 1:25 pm Jack, probably none. The problem is that by law the school districts are required to park their money in the county's investment pool. You think the treasurer is an out-of-control gambler who shouldn't be trusted with your money? Too bad. He doesn't even have to return your phone calls, much less keep your powder dry. Portola Valley and Woodside school districts were (relatively) lucky; they'd already spent most of their bond money. The losses were allocated based on the balance at the time of the loss, so districts that had just raised money got hit hardest, and the districts which might have enjoyed appreciably more income over the years got off with less of a haircut. It's akin to buying a mutual fund about to make a big distribution a few days before the ex-dividend date, instead of years before.
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Posted by Jack Hickey, a resident of the Woodside: Emerald Hills neighborhood, on Feb 1, 2013 at 2:10 pm Bill, you said: "...by law the school districts are required to park their money in the county's investment pool." I've heard that before, but have not seen citations to support that contention. Perhaps you can provide a link.
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Posted by mad, a resident of the Menlo Park: Downtown neighborhood, on Feb 2, 2013 at 8:05 am Jack, do you want each school district to hold onto millions in payroll? Really? Like those people are bankers or accounts? The MONEY was to be used for payroll and building it wasn't supposed to be in anything adventurous at all. PERIOD. Someone should have been fired at the very least. No one had any clue that the county was being so stupid. Then again the same county turned down 10 million dollars..... so go figure. It's not like the county pays any other entity any interest on the money it holds as far as I know. I do know that that those who COULD pull their money away have most likely done so since that time and put them into secure CD's
The FEDERAL GOVERNMENT should have made the PEOPLE's money whole again before bailing out businesses and banks.
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Posted by Peter Carpenter, a resident of the Atherton: Lindenwood neighborhood, on Feb 2, 2013 at 8:11 am
Peter Carpenter is a member (registered user) of Almanac Online "Jack, do you want each school district to hold onto millions in payroll?"
The Fire District does exactly that - and it is about the only local government entity that has a balanced budget, reserves and almost no unfunded pension liability. It is called good government and good management.
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Posted by Jack Hickey, a resident of the Woodside: Emerald Hills neighborhood, on Feb 2, 2013 at 11:07 am Well said, Peter.
mad said: "It's not like the county pays any other entity any interest on the money it holds as far as I know."
If they didn't, the school districts would not have put their money there.
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Posted by Peter Carpenter, a resident of the Atherton: Lindenwood neighborhood, on Feb 2, 2013 at 12:38 pm
Peter Carpenter is a member (registered user) of Almanac Online The superb financial manager at the Fire District saw the county's poorly diversified investment of the county pool and pulled the fire district's funds out of that pool before the Goldman collapse. If the school district's could not have pulled their funds did they at least insist that the county more properly diversify its investments at that same time?
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Posted by GREAT, a resident of the Menlo Park: Downtown neighborhood, on Feb 5, 2013 at 8:24 pm Pete you and Jack go to the county and get THEM to turn over all the money to the school districts (and then figure out how each district is going to PAY to manage that money...)
The money should be invested in SECURE CD's etc. LOCAL investments. Period. They broke their own rules and had way too much invested in Lehman in something that was "IFFY"..... given the investments were given great ratings by a hack American company that was in on the fix should be even more reason that the American GOVERNMENT should have used our money to pay off PUBLIC entities before paying off the BANKS that created the whole problem.
It's just GREAT that the fire department figured out how to do their funding........ NOW... Jack... tell me how they manage to "FUND" their pensions....?? Old firemen I'm sure could keep working a desk OR being totally honest... they are perfectly CAPABLE of working other jobs at their early retirement age. Do they contribute to their pensions? If so, do they really FUND them?
Jack....... you think the teachers' fund should fork over money to Soc. Security?? I contribute MORE to my pension than anyone contributes to their Soc. Sec. and the money that I put into the Soc. Sec. system before teaching is GONE........ nothing I can do about that except maybe work after retiring so that I could get SOME of it.
I have ABSOLUTELY NO FAITH in the county. I'm sure there are those who are still happy they turned down 10 million dollars, but I have yet to see the county do anything to fix the Alpine problems OR find the MONEY to do anything. I'm quite sure that they continue to PAY people to "think" about doing something that Stanford would have already been FINISHED with by now.
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Posted by Jack Hickey, a resident of the Woodside: Emerald Hills neighborhood, on Feb 7, 2013 at 9:43 am GREAT, your comment re: Soc. Security belongs in another topic Web Link
Unanswered questions in this topic include:
Bill, you said: "...by law the school districts are required to park their money in the county's investment pool." I've heard that before, but have not seen citations to support that contention. Perhaps you can provide a link.
and,
How many of the school districts were expecting a hefty return on investment of tax-exempt bond proceeds?
Probably none does not qualify as an answer.
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