As far as Mayor Marion Barry is concerned, a D.C. City Council hearing this week into some of the District's more questionable cash-management practices was an effort by his critics to "make a mountain out of a molehill."
Barry spent a few minutes looking in on the hearing before concluding that it was a "political inquisition" staged by City Council member John A. Wilson (D-Ward 2), chairman of the Finance and Revenue Committee, to embarrass the administration.
"John Wilson's running for mayor," and is using the issue for his own ends, the mayor declared.
But if Barry had stayed and listened to the testimony, he might have gained a little insight into why Wilson and others lack confidence in the way millions of dollars in city funds are being handled.
Wilson and City Council Chairman David A. Clarke scheduled the hearing to try to figure out why the city last Dec. 11 selected an obscure New Jersey-based securities firm, Bevill, Bresler & Shulman Inc., to invest with, despite repeated warnings from the District's senior cash management analyst that the firm was "thinly capitalized" and a bad risk.
Last month, after the city had made a series of short-term investments totalling $100 million with the firm, BB&S Inc. and four related entities went bankrupt and were accused by the federal Securities and Exchange Commission (SEC) of having engaged in fraudulent activities.
During the council hearing, Alvin C. Frost, the cash analyst who sounded the warning, testified that he was repeatedly pressured by Assistant Treasurer Fred Williams to do business with BB&S Inc. even before the firm had been thoroughly checked out and added to a list of preferred financial institutions.
Frost said that Alphonse Hill, the city's deputy mayor for finance, and Williams, for whatever reasons, showed an "unnatural interest" in doing business with BB&S Inc., and tended to gloss over what Frost considered to be some glaring deficiencies in the firm.
After the hearing Frost told a reporter that he assumed Williams pressured him at Hill's behest.
While other investment firms anxious to do business with the District had trouble getting their foot in the door, BB&S officials showed up at Hill's District Building office one day last September and pleaded their case, Hill told the council.
Hill said he was so impressed with the presentation -- the high interest rates being offered and a pledge to post collateral -- that he took the unusual step of visiting the firm's offices in Livingston, N.J., for several hours last Oct. 15 to take a closer look at their operation.
Though several other firms had submitted the required documents and were in the running for some of the District's business, BB&S Inc. was the only firm to rate an on-site visit by Hill.
Williams, who went along for the visit, was assigned the task of analyzing the financial data and other material later submitted by BB&S Inc., although Williams had never before handled such an assignment.
When Williams finished outlining for council members the steps he took in reviewing BB&S Inc.'s finances, Wilson sighed and said: "If that's a review of a company, we have serious problems with our reviews."
Frost, too, said he was disturbed and shocked by the speed with which the city decided to place BB&S on the list of preferred investment firms. He said that Williams gave him a tough time on Dec. 12 -- one day after BB&S had been added to the list -- because Frost hadn't invested funds with the firm that day.
In a memorandum to Williams dated two days later, Dec. 14, Frost said that by adding the firm to the list without more penetrating analysis, the city was creating the appearance of "making the decision with regards to BB&S based upon insufficient or undisclosed information, or upon some external and possibly personal factors which could further the appearance of impropriety."
He also warned that the city would be risking its hard-won reputation within the financial community by continuing to do business with BB&S Inc.
Williams said during his testimony that 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 didn't show Frost's troubling memorandum to Hill or others partly because he and Frost had personal differences and he was angry about another memorandum circulated by Frost that criticized the office.
Hill, Williams and Controller Anthony Calhoun have steadfastly denied that BB&S Inc. was selected as a favor to any company official or in return for a favor.
Barry told a reporter following the hearing: "Nobody I know has an investment in that company. Nobody I know has a personal interest in the company. The implication is that there is some hanky-panky, and I resent it."
The administration's defense of its dealings with BB&S Inc. was shaken later in the week following a report that officials had backdated a memorandum submitted to the council to justify the decision to begin investing with BB&S.
Wilson, who ran an unsuccessful campaign for mayor in 1982, denied Barry's assertion that he is trying to position himself for another race for mayor in 1986. Wilson said that Barry is merely trying to shift attention away from the questionable conduct of his aides in the BB&S Inc. matter.
"Mr. Barry is putting up a smokescreen," he said. "That's what they usually do when you disagree with them -- they cry that you're running against them."
The D.C. government did not suffer a loss as a result of the BB&S bankruptcy. The District had $10 million invested with the company at the time of its collapse, but the city recovered its final $10 million short-term investment with BB&S Inc. by seizing and selling collateral posted by the firm.
Yet until the federal bankruptcy proceedings are completed, there is no guarantee that the trustee for the BB&S group or others might not challenge the District's right to the proceeds from the sale of the collateral.