The District's senior cash management analyst testified yesterday that he was pressured by a superior to begin investing millions of dollars in city funds with now-bankrupt Bevill, Bresler & Shulman Inc. before the securities firm had been formally approved to do business with the city.
Alvin C. Frost, who is responsible for investing city funds, told City Council members that he was repeatedly pressured by Assistant Treasurer Fred Williams to do business with BB&S Inc., despite Frost's reservations about the firm's financial stability.
Frost told a reporter afterward that he assumed Williams pressured him at the behest of Alphonse G. Hill, the deputy mayor for finance, who placed BB&S on a list of preferred financial institutions Dec. 11 after visiting the firm's offices in Livingston, N.J.
"Prior to Dec. 11 . . . we Williams and Frost did have a number of discussions on whether I should have transactions with BB&S Inc. before they were put on the list," Frost said during a joint hearing of the Finance and Revenue Committee and the Committee of the Whole.
Frost said he balked and warned Williams that it would be illegal to invest with BB&S before the company had been officially approved.
Williams later in the hearing denied that he tried to pressure Frost or that he had received a note from Hill around Nov. 8 -- one month before BB&S was added to the list -- urging him to "Let me know when you have executed a transaction."
However, Williams told the council members that Hill called him around that time to make a "general inquiry" as to whether the city had begun to invest with BB&S.
Williams also confirmed that he failed to pass along to Hill or Controller Anthony Calhoun a memorandum that Frost wrote Dec. 14 strenuously objecting to investing with BB&S and warning that the city might be risking its reputation within the financial community.
Williams said he agreed with Frost that some precautions had to be taken in dealing with BB&S, including limiting individual investments to $10 million. He indicated that he sat on the memorandum partly because he and Frost had personal differences and he was angry about another memorandum circulated by Frost that criticized the office.
"It made me question Mr. Frost's overall judgment," Williams said. "But in hindsight, I would say, yes, I should have given Mr. Hill and Mr. Calhoun the benefit of that Dec. 14 memorandum."
The city invested a total of $100 million with BB&S Inc. over a four-month period before the firm went under last month. The District had $10 million invested with the company at the time of its collapse, but avoided losses by seizing and selling collateral that the firm had posted.
Mayor Marion Barry, who attended the joint session briefly, called the hearing a "political inquisition" by Council finance committee chairman John A. Wilson (D-Ward 2). "John Wilson's running for mayor," and is using the issue for his own ends, Barry said.
Barry also said no one in his administration has a personal reason for pushing BB&S. "Nobody I know has any investments in that company. Nobody I know has a personal interest in the company," the mayor said. "The implication is that there is some hanky-panky, and I resent it."
Yesterday's hearing was called by Wilson and City Council Chairman David A. Clarke to review the transactions with BB&S and the city's general practices for making short-term investments.
Wilson said he was troubled that Frost's memorandum was not shown to Hill and Calhoun and at one point in the hearing he chastized Williams for allowing personal differences with Frost to leave the city open to possible losses.
Wilson also charged that BB&S Inc. officials, for whatever reasons, received "royal treatment" from Hill and Williams over a number of other firms that were aggressively seeking the city's business. Both Wilson and council member Betty Ann Kane (D-At Large) said they doubted city officials did an adequate job of analyzing BB&S Inc.'s finances before adding it to the approved list.
Clarke also expressed concern about the city's cash management practices but indicated through his questioning of Frost that he wasn't convinced that Hill or others had placed inordinate pressure on Frost to do business with BB&S Inc.
Last Friday, Frost delivered a five-page letter to Mayor Barry's office complaining that he had been harassed and unfairly treated by Williams, Calhoun and Hill since The Washington Post first published stories about his internal memorandum on April 10.
Barry said yesterday that he hadn't read the memorandum. As for Frost's allegations of being pressured to invest with BB&S Inc., the mayor said, "I don't know why he'd be pressured. What's the purpose?"
The District had $10 million invested with BB&S Inc. at the time of its collapse. The city recovered the principal and interest on its transaction and $100,000 in additional funds by selling the collateral.
Calhoun said yesterday that the trustee for the bankrupt firm has asked the District to return the $100,000.