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NOTICE OF ADJOURNED MEETING
NOTICE IS HER�BY G1V�N that the C"ity o� Palm Desert Finance and Investment
Committee seheduled meeting o{ A�ec�nesc�ay, August I8, I99LJ at I:30 p.m. has been
adjourned to 1Y/ec�nesc�ay, September l5, 1999 at 1:30�.m. in the Nortk Wing C'on�erenee
Room due to lacl� of quorum.
1�you have any questions, please call me at ext. 32�.
��L f,�,�, � �,ll�'�a �
VERONICA ABARCA
RECORDING SECRETARY
Distribution: News Media
Members o� Finance � Investment C'ommittee
City Sta�{
Dated: August 12, 1999
♦
^ _ ��
�� I __ N T _ E R
_- _ - -_ MEMO
0 F F I C E
�I'o: �inauce and Investment �.'ommittee Memb� gr�p /
From: Paul S. Gibson, Director of Finance 1����v
subject: �inancial Papers �or C"anceled Meetin� o�August 18, 1999
Date: Augnst 16, 1999
As stated at the July meeting, we have attached the documents for tke �ollowing items wh�oh
would have been included on the August agenda:
l. City and RDA Port{olio Summary {ox the month ended July 31, 1999
2. Par�Zview O{�ice C'omplex
3. Miscellaneous Articles �rom T�omas Je{{rey
The ne�ct xe�ulax scheduled meetin� will be �eld Wednesday, September 15 at 1:30 p.m. in the
North Wing C'on�erence Room.
I�you have any questions, please do not hesitate to contact me.
Than�Z You.
_ _ . , .
City of Palm Desert �
Parkview Office Complex
1�Y-99 July-99 # % YTD YTD # %
Budget Actual Variance Variance Bud et Actual Variance Variance
Revenues
Rental $ 62,800 $ 60,808 $ (1,992) 96.83% $ 62,500 $ 60,808 $ (1,992) 96.83%
Dividends/Interest $ 1,250 $ 3,739 $ 2,489 299.12% $ 1,250 $ 3,739 $ 2,489 29912%
TotalRevenues $ 64,050 $ 64,547 $ 497 100.78% $ 64,050 $ 64,547 $ 497 100.78%
Expenses
Professional-Accounting&Auditing $ 5,800 $ 5,800 $ - 100.00% $ 5,800 $ 5,800 $ - 100.00%
Professional-Management Fee $ 5,500 $ 5,980 $ (480) 108.73% $ 5,500 $ 5,980 $ (480) 108.73%
Tenan[Improvements $ 3,700 $ 272 $ 3,428 7.34% $ 3,700 $ 272 $ 3,428 7.34%
Repairs&Mainte�ance Building $ 9,100 $ 4,486 $ 4,614 49.30% �.. $ 9,100 $ 4,486 $ 4,614 49.30%
Repairs&Mai�tenance-Landscapin $ 1,079 $ - $ 1,079 0.00% '��. $ 1,079 $ - $ 1,079 O.IXI%
Utilities-Water $ 250 $ - $ 250 0.00% ���. $ 250 $ - $ 250 0.00%
Utilities-Gas/Electric $ 5,500 $ - $ 5,500 0.00% $ 5,500 $ - $ 5,500 0.00%
UtIlities-Trash $ 450 $ 1,110 $ (660) 246.70% $ 450 $ 1,ll0 $ (660) 246.70%
Telephone $ 150 $ 136 $ 14 90.68% $ 150 $ 136 $ 14 90.68%
Insurance $ 520 $ - $ 520 0.00%a $ 520 $ - $ 520 0.00%
TotalExpenses $ 32,049 $ 17,784 $ 14,265 55.49% '��. $ 32,049 $ 17,754 $ 14,265 55.49%
Equipment Replacement Reseroe $9,186.00 $9,638.58 $ (453) 104.93°k $ 9,186.00 $ 9,638.SS $ (453) 104.93%
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Parkview Office Complex
Vacancy Rate Schedule by Suite
July 1999
Suite Square
No. Tenant Feet
73-710 Fred Waring Drive-Two (2) Story Building
100 Hanover 2,560
102 Bergren 1,360
103 Multiple Sclerosis 48S
104 Arthritis Foundation 960
106 Vacant 928
108 Senator Kelly 785
112 Assemblyman Battin 1,406
114 Chamber of Commerce 1,478
118 CouncIl Approved-U.S. Filter (2 yr.Lease) 1,250
119 City/CVAG Conference Room 1,380
120 Golf Dimensions 1,750
200 CVAG 4,292
200A Vacant(space is not available to lease) 841
201 U.S. District Court 604
203 Accounting Services 480
205 Coachella Valley Economic Partnership 700
20S Council Approved New Lease w/ A.Trask 960
210 Wilson,Pesota&Pichardo 3,040
211 Alzheimer's Associa6on 937
217 Mcmillan 775
Imest,Vacancy Report
Parkview Office Complex
Vacancy Rate Schedule by Suite
July 1999
Suite Square
No. Tenant Feet
220 CA.State Dept. of Agriculture 1,607
222 WMA Securities 2,981
Total square footage(2 story Building) 31,562
Vacancy Rate----1,769/31562= 5.60%
73-720 Fred Waring Drive-One Story Building
100 State of California-Water Resources 15,233
102 Vacant(Construction bid was awarded to Wall
Construction-work to begin late August) 4,396
TotalSquare Footage 19,629
Vacancy Rate----4,396/19,629=22.4%
Overall Vacancy Rate for Both Buildings:
Vacancy Rate--6,165/51,191= 12.04%
Invest;Vacancy Report
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CITY OF PALM DESERT INVESTMENT ACTIVITY REPORT — JULY 1999
EXECUTIVE SUMMARY
As of 7/31/99, total portfolio book value was approximately$172MM. This reflected a net increase of approximately$3.8MM
from prior month, due to sales tax receipts and other revenues. There was an unrealiied portfolio net gain (market value-book
value)of approximately$262M, based upon prevailing market interest rates.This was only a "paper"gain since there was no
profit-taking. Significant changes in investment position are shown below:
'•Unitad Statas Treasury-Coupon". The City buys interest-bearing U.S. Treasury notes with maturities of 2 - 10 years to
invest assessment bond proceeds. Although unrated, considered "AAA". THIS ACCOUNT BALANCE DECREASED BY
APPROXIMATELY$3.5MM DUE TO A NEW SECURITY PURCHASE.
"Federal A�ncv-Coupon". The City buys U.S. government agency and instrumentality notes with maturities of 2- 10
years to invest assessment bond proceeds. Agency debt guaranteed by U.S. Treasury; instrumentality debt is not
(guarantee, instead, believed to be U.S. GovernmenYs"moral obligation"). Although unrated, considered "AAA."
THIS ACCOUNT BALANCE DECREASED BY APPROXIMATELY$1MM DUE TO A MATURING SECURITY.
"Local Ayency Investment Fund (LAIFI". The City temporarily invests proceeds of matured securities in $13MMM
pool managed by State Treasurer's Office for 2,600 governmental entities. LAIF has diversified portfolio (BAs, CP, Treasuries,
agencies, corporates, repos, reverse repos, CDs)with weighted average maturity of 180- 540 days. THIS ACCOUNT
BALANCE DECREASED BYAPPROXIMATELY$7.7MM DUE TO WITNDRAWALS FOR SECURITY PURCHASES.
"Federal Aflenc�Callahle". The City purchases federal agency securities that may be called prior to maturity, in
order to obtain a� additional premium for that risk, thereby increasing overall portfolio profitability. THIS ACCOUNT BALANCE
BALANCE INCREASED BY APPROXIMATELY$2MM DUE TO A NEW SECURITY PURCHASE.
"Citv Loan to RDA". The Ciry has made long-term cash advances at LAIF interest rate to RDA for property purchases.
Advances will be repaid in future years from tax increment revenue generated by associated redevelopment projects.
THlS ACCOUNT BALANCE DID NOT CHANGE.
"Fideli Treasury Pool". The City invests assessment bond proceeds (construction, cost of issuance, and bond reserve
reserve monies) in "Fidelity Institutional Money Market Fund: Treasury Portfolio- Class i." This$3.9MMM fund invests
in U.S. Treasury bills and notes, and repurchase agreements for those securities. Weighted average maturity is 60 days or
less. S&P credit quaiiry rating of"AAAm"; Moody's of"Aaa". THIS ACCOUNT BALANCE /NCREASED BY
APPROXIMATELY$3.8MM DUE TO MATURING SECURITIES.
"t�nited States Treas�ry-DiscounY'. The City buys noninterest-bearing zero coupon securities ("STRIPS")with maturities
of 6 months-30 years, to invest assessment bond proceeds. Purchased at discount; face value paid at maturity(difference
is yield). Although unrated, considered "AAA". THIS ACCOUNT BALANCE DID NOT CHANGE.
"HiahMark Sween Accounts", The City sweeps excess checking balances into"HighMark 100% U.S. Treasury Money �
Market Fund". This$905MM fund invests only in U.S.Treasury bilis, notes, and STRIPS (no repos or reverse repos).
Weighted average maturity is 90 days or less (per SEC regs). Although unrated, underlying securities considered "AAA".
THIS ACCOUNT BALANCE INCREASED BY APPROX/MATELY$1.3MM DUE TO SALES TAX RECEIPTS.
"State&Local Govt Serias -Time". The City buys special noninterest-bearing U.S. Treasury certificates of
indebtedness with maturities of 15 days- 1 year,to invest assessment bond proceeds (to comply with IRS yield 8 arbitrage
rebate regs). Nonmarketable. Although unrated, considered "AAA". THIS ACCOUNT BALANCE DID NOT CHANCaE.
"Medium-Term Notes". The City buys interest-bearing corporate medium-term notes with maturities of five years or less,
to invest revenues. THIS ACCOUNT BALANCE INCREASED BYAPPROX/MATELY34MM DUE TO NEW SECURITY
PURCHASES.
"Federel A��y-Dtscount". The City buys noninterest-bearing federal agency notes at a discount. THIS ACCOUNT
BALANCE DID NOT CHANGE.
"Commercial Paoer". The City buys high-grade, unsecured commercial paper at a discount, with maturities of 180
days or less,from Fortune 500 companies. THIS ACCOUNT BALANCE INCREASED BY APPROXIMATELY$5MM DUE TO
TO NEW SECURITY PURCHASES.
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_ (%)O131A
REDEVELOPMENT AGENCY "' INVESTMENT ACTIVITY REPORT ^ JULY 1999
EXECUTIVE SUMMARY
As of 7131/99, total portfolio book value was approximately$158MM (with SLGS). This reflected a net decrease of
approximately$4.2MM from prior month due primarily to construction activity. There was an unrealized portfolio net gain
(market value- book value)of approximately$438M, based upon prevailing market interest rates. This was only a"paper"
gain since there was no profit-taking. Significant changes in investment position, by security type, are discussed below:
"State& Local Govt Series -Coupon." Palm Desert Financing Authority buys special interest-bearing U.S. Treasury
notes with maturities of 2- 10 years to invest proceeds of advance refundings held in escrow(to comply with IRS yield and
arbitrage rebate restrictions). Although unrated, considered "AAA". THIS ACCOUNT BALANCE DID NOT CHANGE.
"Fidali�reasury Pool." RDA invests tax-exempt bond proceeds (construction, cost of issua�ce, and reserve monies) in
Fidelity Institutional Money Market Fund: Treasury Portfolio-Class I." This$3.9MMM fund invests in U.S. Treasury bills
and notes, and repurchase agreements for those securities. Weighted average maturity is 60 days or less. S&P credit
quality rating of"AAAm"; Moody's of"Aaa." THIS ACCOUNT BALANCE DECREASED BYAPPROX/MATELY$2.5MM
DUE TO CONSTRUCTION ACTIVITY.
"�al A9ency Investmant Fund (LAIFI." RDA invests City's loan in $13MMM pool managed by State Treasurer's
Office for 2,600 governmental entities. LAIF has diversified portfolio(BAs, CP, Treasuries, agencies, corporates, repos,
reverse repos, CDs)with weighted average maturity of 180-540 days. THIS ACCOUNT BALANCE DECR�ASED BY
APPROX/MATELY$5.3MM DUE TO WITHDRAWALS FOR SECURITY PURCHASES.
"United States Treasury-Couoon:' RDA buys interest-bearing U.S. Treasury notes with maturities of 2 - 10 years to
invest tax-exempt bond proceeds. Although unrated, considered "AAA". THIS ACCOUNT BALANCE DECREASED BY
APPROXIMATELY$3M DUE TO AMORTIZATION OF PREMIUMS.
"State& Local Govt Series -Time." Palm Desert Financing Authority buys special noninterest-bearing U.S.
Treasury certificates of indebtedness with maturities of 15 days- 1 year to invest proceeds of advance refundings held in
escrow(to comply with IRS yield and arbitrage rebate restrictions). Nonmarketable. Although unrated, considered "AAA."
THIS ACCOUNT BALANCE DECREASED BYAPPROXIMATELY$372M DUE TO A MATURING SECURITY.
"United States Treasury -Discount." RDA buys noninterest-bearing zero coupon securities("STRIPS")with maturities of
6 months-30 years to invest tax-exempt bond proceeds(construction monies). Purchased at discount; face value paid at
maturity(difference is yield). Although unrated, considered "AAA". THIS ACCOUNT BALANCE D/D NOT CHANGE.
"HiahMark Sweeo Accounts:' RDA sweeps excess checking balances into "HighMark 100°/a U.S.Treasury Money
Market Fund." This$905MM fund invests only in U.S. Treasury bills and notes (no repos or reverse repos). Weighted
average maturity is 90 days or less (per SEC regs). Although unrated, underlying securities considered "AAA."
THIS ACCOUNT BALANCE INCREASED BYAPPROXIMAI"ELY$54M DUE TO INTEREST/NCOME.
"Federal Ayency-Coupon:' RDA buys U.S. government agency and instrumentality notes with maturities of 2- 10 years
to invest advance refundings and tax-exempt construction funds. Agency debt guaranteed by U.S. Treasury; instrumentality
debt is not(guarantee, instead, believed to be U.S. GovernmenYs "moral obligation"). Although unrated, considered "AAA."
THIS ACCOUNT BALANCE INCREASED BY APPROXIMATELY$3M DUE TO AMORTIZATION OF DISCOUNTS.
"Federal Aaancy-DiscounY'. The City buys noninterest-bearing federal agency notes at a discount. THIS
ACCOUNT BALANCE DECREASED BY APPROXIMATELY$1 MM DUE TO A MATURING SECURITY.
"Commercial Paoer". The City buys high-grade, unsecured commercial paper at a discount,with maturities of
180 days or less,from Fortune 500 companies. THIS ACCOUNT BALANCE DID NOT CHANGE.
'Federal Aggncy -Callable". The City purchases federal agency securities that may be called prior to maturity, in
order to o6tain an additional premium for th�t risk, thereby increasing overall portfolio profitability. THIS ACCOUNT
BALANCE INCREASEO BY APPROXIMATELY$3MM DUE TO NEW SECURITY PURCHASES.
"Medium-Term Notes". The City buys noninterest-bearing corporate medium-term notes with maturities of five
years or less,to invest revenues. THIS ACCOUNT BALANCE INCREASED BYAPPROXIMATELY$2MM DUE TO A
NEW SECUR/TY PURCHASE.
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_ _._.._.____ I
� > ALA M I N tives claimed "there were no program,city officials havelsaid.
strings attached," sh —'aid. The city's involvemen[ stopped
Alamin asked for a list ,�roj- afterTreasurer Rosemary Jones,
, ConunuedEromAd ects that could be funded with whose signature also was re•
the money — a list which she quired,refused to participate on �
the complaint states. "The de- and the mayor sent. March 16.
fendants are soliciting munici- "They sent back legal docu• Jones has said she had many
palities ro purchase interests in ments to sign,and we just said, quesrions about the proposed in•
fictitious prime bank 'top 25 'No way,"'Hamilton said. vestment and would not sign
S&P/Moody's rated Midterm Eu- She called the attorney gen- any documents.Jones was out of
ropean Bank notes,' purporting eral's office in Utah,the FBI and the office Thursday,�said Assis-
[o invest money in the trading of others about Alamids offer be- tant Treasurer Michelle Lund.
bank securities, debenmres and cause she worried that some Lyon asked city Finance Offi-
letters of credit. other city could fall for it, she cer Carole Gierhart to mee[
"These programs are com- said. with him and Alamin officials in
pletely bogus," the complaint Greg Anderson, mayor of February and March, Gierhart
states, "the 'prime bank instru- Pocatello,Idaho,said Alamin of- states in an affidavit submitted
ments' offered by the defen- ficials told him in June his town to the SEC on July 28. The
dants simply do not e�cist." was eligible for "a grant pro- Alamin officials at the meeting
Attempts to contact Alamin gram." "presented a program whereby
and Financial Resources repre- "From day one it was one of the city would restrict a portion
sentatives Thursday about the those things that sounded too of the investment portfolio," the
allegations were unsuccessful. good to be true,"Anderson said. docu.-nent states
The SEC's attorney,Thomas "IC really had my antennae up." That portion of the city's pora
Melton, said he spoke Wednes- He cootacted the Pocatello folio controlled by Alamin
day with Vaughn who denied ciry attorney, the Association of would be used to secure credit
any wrongdoing. Idaho Cities, and other sources, for the creation of securities to
Alamin representatives ap- he said,and decided not to get fund Third World countries, the
proached elected officials in involved. document staces.The city was to
Utah,Idaho, California,Wash- Alamin officials approached realize returns of 130 percent
ington, Oregon, Oklahoma, Oceanside Mayor Dick Lyon in monthly.
North Dakota, Ohio and South February and March with a pm- "I was told the program was
Carolina, with a scheme that posal for city officials to pledge very confidential and could not
promised risk-free returns of $100 million of its $i35 million be discussed with anyone,"Gier-
130 percent monthly, said SEC investment portfolio �o a "high hart's affidavit states.
district administrator Kenneth yield bank debenture trading "From the beginning of the
IsraeL program,"the complaint stares. meetings in the matter I was
"Nobody actually invested," Lyon met privately with very suspicious of the program
Israel said. "Some oE them went Alamin representatives and and discussed the pmg-am wi[h
as far as Oceanside did. I don't signed a "letter of intenY' on the city treasurer and city attor-
think anybody could have gone city stationery stating the city ney at length,"it states.
any farther without losing some intended to participate in the Gierhart was out of town
money."
A hearing could be scheduled
as early as next week, Israel
said.
The controversy over
Alamin's activities first became
public in March after a series of �,
meetings beriveen Alamin rep-
resentatives and Oceanside offi-
cials. Alamin was seeking wn-
trol over $100 million of the j '
city's investment portfolio.The �_
deal died after City Treasurer �`
Rosemary Jones refused to sign '
a power of attorney granting �
Alamin control over the money. �
South Ogden, Utah, City '
Manager Linda Hamilton said
Thursday that Alamin ap-
proached her mayor in May ���
about what was described as a �
possible grant of $50 million. I
That sounded like a lot of mon-
ey in a city with an annual gen-
eral-fund budget of about $S '
million,she said.
"I thought it looked very sus- �'��..
picious from the get-gq" Hamil- '
ton said. . �
One thing that tipped her off ;
was that the rllamin representa- !
, � _
Thursday and could not be turned numerous messages left nia BazAssociadon.
reached. on his answering machine by Vaughn sent an e•mail mes-
Lyon initially deFended his various reporters since March, sage last week to the city, the
meetings with Alamin, saying it has said he has a law degree North County Times, two other
was his responsibility to investi• From Washington University in
gate any money-making possi- St. Louis, the SEC complaint > ALAMIN,A-6
bility for the city. In recent states.He was admitted to prac-
weeks he has refused to discuss tice law in California on June �T ' `
the matter and he did not return 16, 1955, but has been dis-
a call to his office Thursday. barred,according to the Califor- i
Oceanside Councilman Terry ___ ________
Johnson said Thursday, "We
could have lost a substantial
amount of money if Rosemary
Jones had signed the necessary
papers that Mayor Lyon was ag-
gressively trying to get her ro do. �
"After four months, iYs time F
ro bring some closure to this is- C
sue,"Johnson said. "The SEC is �
the financial investigative 6
watchdog for the nation and I �
certainly support its due dili- �
gence wi[h the investiga[ion of [
Alamin Inc.,and those who sup- r
ported its proposal, should be E
held accountable" j
Council members Betty `
Harding and Carol McCauley, �
who have called for Lyon's resig- �
nation, were in Monterey for a �
League of California Cities
meeting and unavailable for �
comment Several other city offi- �
cials, including Councilwoman �
Colleen O'Harra and Ciry Attor- �
ney Duane Bennett,are on vaca- �
tion. I
Oceanside City Manager Tom I
Wilson also declined to com- f
ment. �
Vaughn, who has not re- �
,
_ �
> ALAM I N Place liquid assets into a trust to �
be administered by Alamin, the
CondnuedfromA•2 complaint states.Alamin offi- .
cials promised to use those as-
sets as collateral for funds that ,
publications and numerous indi- would be invested in a prime �'
viduals saying he intended to bank trading program yielding '
file a "multibillion-dollar" up to 130 percent returns
defamation lawsuit because of monthly with no risk.
the news stories about his com- The SEC alleges that the pro-
pany. gram was designed for "fraudu-
Kent Davy, editor of the lent purposes."
North County Times, has said "The defendants have en-
the newspaper stands by its sta gaged in a fraud upon investors, ,
ries. because they either knew or �
Arvidson resides in Hunting- were reckless in knowing, tha[ ,
ton Beach,the wmplaint states. these 'prime bank instruments' '
He is affiliated with Financial do not exist, that the promised �
Resources of Hunrington Beach, rates of return could never be .
which claims to be the commu- earned or paid and the IMF did '
nication link between Alamin not authorize this program,"the �
and local gwernments,it states. complaint states.
In its filing the SEC included "...FuRher, the defendants'
an exchange of letters between promises that the funds of the ;
the International Monetary municipalides would be pmtect-
Fund and Arvidson in which the ed from risk was false — the
_ agency demanded that Arvid• very nature of the scheme re-
son cease and desist using the quired that municipal funds be �
� IMF name and requested thai put at risk." �,
"each and every recipient oF _ _ _,.___.__ _.
your unauthorized representa-
tions" be informed that "the
IMF is in no way associated with
your company or iu activities."
Arvidson's May 24 letter
replies: "In some of our discus-
sions we inappropriately illus-
trated a connection to the IMF
because we understand that
they provide funds to underpriv-
ileged markets.We made a mis-
take in doing so and will ex-
clude reference to the Il1g' in
any future discussions that we
may have ... Statements were,
I'm sure,taken out 6f context in
using it as an example."
In making their pitch,Alamin
officials required interested
cities to list projects those gow
ernments would like to fund
with proceeds earned from a
trading program, the compiaint
states. Alamin then approved '
the cities' investment in the
amount equal to the cost of the
projects. �
The cities were required to
, > TI M E LI N E W� ��n, Caffray, Foss and story. Deputy Mayor 0'Harra $135 million investment portfo-
Vaughn.Jones, Bennett and and Lyon are in Washington, lio as part of planning for the re-
f co�ri�,�ea[romn•i Gierhart are present. More infor- D.C., on ciry business. tirement in August of the city fr
mation is provided about the ■March 26: News of the finarr nance officer.
men who identify themselves as Proposal. cial investment opportunity cre ■Apol 21: Lyon voluntarily re
� brokers from Alamin Inc.,of Los �March 16: Rosemary Jones ates an uproar at City Hall as it leases a copy of a non-binding
� Angeles.The friend, Arnie Ka sends a letter to Lyon, Bennett becomes apparent none of the "letter of intenY' in which he ex-
pan of Rancho Santa Fe, brings and Wilson saying she cannot four City Council members were presses his interest in pursuing
Don Caffray and Eric Foss of sign any agreement regarding aware of the talks with Alamin. the unorthodox investment pro-
Long Beach,to pitch Lyon their the proposed deal without the Three council members say they posal.
deal. Lyon invites the citys fi- approval of the Oceanside City would consider calling for the ■June 9:The City Council ap
nance officer Carole Gierhart to Council. It is at this point that resignation of Lyon. proves several changes to its irr
the meeting. Gierhart invites Lyon said later he knew the deal ■March 28: Bennett said there vestment policy,giving the city
City Treasurer Rosemary Jones, �sn't going to happen.That is no truth in Lyon's claim that treasurer's office tighter control
who can't make it. night, Lyon receives a phone Bennett supported him in an ir� over Oceanside's $135 million
■Feb. 22: Lyon meets with K& cali from a Huntington Beach vestment plan involving$100 investment portfolio.
pan, Foss, Caffray,City Attorney man identifying himself as John million of the citys investment ■July 21: Memorandums circu-
Duane Bennett and Carole Gier- �owles. Lyon said Knowles portfolio. lating in City Hall disclose that
hart in the Sister Cities Room told him "iYs a matter of life ■March 29: Lyon said he isn't Alamin Inc. has surfaced in four
, down the hall from his office. and death," Both men agree convinced the financial program other states.The memorandum
, More information about the pro-'- that Knowles drove to Ocea�r that promised returns of up to also says the Securities and Ex-
', posal is provided. Bennett ex side and met with Lyon,telling 130 percent each month on city change Commission in Washing
' presses concem about it. Be', him the deal was a mirage of funds was a bad deal. ton, D.C., has begun preparing
� smoke and mirrors. �' ■March 3i:The San Diego charges against key Alamin fig
� cause he dcesn't have all the �March?,0: Lyon goes to visR County disVict attorney's office ures.
necessary information, howev- �pan at his Rancho Santa Fe launches an investigation into ■July 23:Alamin Inc.threatens
� er, he won't conclude it is ille- ' home for brunch. He wams K� the investrnent opportunity pur- the North County Times and two
� gal. He seeks a second opinion �n of Knowles' information. sued by Lyon. other pubiications,the state of
from a Los Mgeles law firm. It
r ■March 25:Jones, after being ■Apdi 7: Residents call for Ly- Utah, Oceanside and a number
confirms Bennett's initial contacted by the North County on's resignation and counci� of individuals with a multi-billion
' doubts. Times, alerts members of the members express disgust for dollar defamation lawsuit.
■March 4: Kapan, Foss and City Council about the proposal. his pursuit of the unorthodox irr ■July 28:The Securities Ex-
I Caffray bring a nonbinding letter fie next morning, individual Ciry vestrnent plan. change Commission files a
'� of intent to Lyon's office,telling Council members said they re- ■Apol 8: City Council members complaint against Alamin Inc.,
', him if he doesn't sign it,they quested from Wilson and Berr say they didn't call for Lyon's seeking fines and an injunction
' can tell him no more about the nett all information they have r� . resignation because the city against the company for its so-
deal. Lyon signs the letter.This garding this situation. Council needs time to heal. licitation of 23 municipalities
is the only document Lyon says members Harding, McCauley ■April 9: Rosemary Jones across the country.The SEC
he signed. and Johnson spend the week asks the City Council to hire an says the plan was designed to
■March 11: Lyon meets with end trying to piece together the outside firm to handle the city's defraud.
Foss, Kapan, Caffray and a new
player, George Vaughn,who
gives Lyon a detailed presenta
tion of the program.Vaughn al-
so brings what appears to be a
letter of recommendation from
the Union Bank of Switrerland,
apparenUy typed on the bank's
letterhead.
■March 13:City Manager Tom
; Wilson and Lyon meet at the
'i Beach Break Cafe. Lyon seeks
Wilson's opinion about the pro-
I posed deal, providing him with a
I brief verbal background about it.
j Wilson tells Lyon it sounds bad.
■March 15: Lyon again meets
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, ; FRIDAY,)u�x 30, 1� � '�
� ,.
i
,
' � ■ Complaint alleges frau ;°
�
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;
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�� TERRY WELLS �
�I � STAFF WRIiER ,
q
i
Prime bank investment "
fraud, in which investors are � T
�`, promised huge, risk-free re-
turns in a secret intemational w
� � finandal mazket,is taking on a
new and potenrially much fat-
..��,p� . ter tazget, federal prosecutors
)UIJC� .I� say—atYgovemments.
Thomas Melton, a trial
. lawyer with the Securities and
'' — Exchange Commission's office
I� in Salt Lake City, said bogus
�I "high-yield" investment plans
�' have been
pitched to wealthy
private investors for at least
eight years,peaking in the mid-
„,� 1990s, then tailing off until re-
' ''�3VZS+pg�
�y- >PRIME,A-2
.9�
::.bl
s"�"°°"i The following is a recorr
- � struction of events, as re
ported by the North
County Times, leading to
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h4 FRIDAY,]tn.v 30, 1999
> PRIME
Confinued fiomAZ
false assertion that the world's
lazgest,or"prime," banks con-
duct a secrerive trade in finan•
cial instruments called deben-
tures.There is a shard of truth:
Banks do issue debentures, or
' unsecured letters of credit, ', -
when uansferring lazge sums of
maney,but these instruments
are not traded,federal officials
have said.
� "Prime bank scams are a
complete fiction and they do
� not exist," Melton said. "And
, anybody who says that they're ' pR�M E ��document states.
involved with them is aying to
commit fraud" $ecause no cicy in the lawsuit
In some cases rime bank ���uedfromn.4 took the bait and si
' P assets �ed over its
sales operatives include a , it is 'vnpossible ro know
bizarre histary lesson, saying prime bank deals is seae Vio- Vau t W�uld have happened if
these extravagandy successful + tims enerall si �' P� and Arvidson had suc-
g Y gn "non•disclo- ceeded. But Melton and other
investments have origins in the ; sure" documents that pledge federal offiaals say that in most
aftermath of World War II as ; confidendality on pain of losing cases,the"risk-free"investment
Europe was rebuilt under the the le al claim to their invest- disa
Marshall Plan.To enerate ca i- g PPQaTs.
g P ment, along with profits.That In one case pending at the
tal,the lesson gces,banks devel- non-disclosure agreement often Salt Lake City bureau of the
oped a lucrarive side market in hampers prosecutors trying ro SEC,hundreds of invesrors put
debentures but strictly limited build cases involving private in• together a $30 million pool and
the number of people involved vestors, officials have told the turned it over to a proponent of a
to ma�mize profits.This expla- North Councy Times.
nation was used by Vaughn dur- In the SEC case involving the ��n gd inve�stment program.
ing a March meeting with ciry cities,that oint was hammered in Cos a R a, atch man is now
officials that was ta e-recorded. p pparently safe
P home in a summary given to from e�madidon,Melton said.
Once the victims are con- : Oceanside city officials b
vinced, they are usually asked � �a� Y In many cases, the person
� to open a special account with a � pushing the deal uses bank ac•
1 e sum of mon and are re- � "Under no circumstances counts in countries with no co-
pea edly assured that the mon• 7 should any communication,ma• operative treaties with the Unit-
' ; terial or pmprietaty documents ed States—places like Lichten-
j ey would never be touched, pertaining to this program be stein,a tiny lcingdom in Europe,
� even if things go wrong. In the disclosed to the media," the or the Ca
Oceanside proposal, for exam- ' yman Islands.
ple,Alamin officials said they —
would declare bankruptcy if the
investments failed to protect
� the city's $100 million — de-
spite the fact that the money
, was supposedly to be used as
collateral.
Oceanside Mayor Dick Lyon,
who advocated going ahead
with the deal, has frequently
_ said the "risk free" aspect of
the investment was key for him,
', and he insisted that the city
� would never have risked losing
' its money. He has since de-
jclined to comment on the mat- j
ter for several months.
� Another recurring aspect of j
.`,.' > PRIME,A-6 :. /'
�
Alamin_approached many
citles with funding plan ;
1.E MITCHELL their agents offered at least 23 .'
ST^�WR'TER cities the chance ro invest in a
os ge es-aed com a• Uro�"am [h_'''Piomi'"se=..fllnd
Ip provement wish-luts,
ny accused of attempting to de- Such lists,usually involving
fraud the city of Oceanside . a cit�s or county's major infra-
of$100 million from its in- structure items like roads and
veatment portfolio ap- bridges, are typically planned
proached nearly two dozen and funded over a five-year in-
local governments across the crement.
country, a complaint filed by In this case, federal regula-
federal authorities this week tors are alleging that Alamin '
` states. and Financial Resources prom-
The civil complaint filed ised the municipalities that in �
Wednesday by the federal Se• exchange for their turning over
curiries and Exchange Commis- control of a significant pereeno-
sion against Alamin Inc.,Finan- age of their investment portfo-
cial Resources Inc. and princi• lios,they would be rewarded by
pals George L.Vaughn and Cur[
Arvidson, says the men and >CITIES,A-4
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8AiURDAY,)ULY 31, 1999 j '•
�
,
' SE.0 ney Duane Bennett, City 17ea- �
surer Rosemary Jones and Ciry ;,
ConenuedfromA•1 Investment Officer Carole A. �.
Gierhart.The demand for a re-
traction also names the state of
interview requests by telephone Utah and that state's financial
and e-mail by the newspaper. advisory council,which relayed
Vaughn is founder of Los Ange- alerts about Alamin to local
les-based Alamin Inc., and agencies.
Arvidson of Financial Resources The threatened libel action '
Inc.of Huntington Beach. also would name three publica- ,
The lawsuit,filed Wednesday tions—the North Counry Times,
by the Securities Exchange the San Diego Union-Tribune
Commission, accuses Vaughn and the Bond Buyer,a securiaes
and Arvidson of trying to lure trade journal—for their ongo-
city officials into nonexistent in• ing coverage of the Oceanside ;
vestment programs that were controversy.The announcement '
touted as both high-yield and followed three months during ='
risk-free.The suit alleges that which phone calls from the .
both men misrepresented the North County Times to Vaughn's '`
nature of the deals and failed to home went unreturned. ,�
register the securities in viola- Vaughn argued in his e-mail s
tion of federal securities laws.. message Friday that fears of his
On Wednesday, SEC lawyers threatened libel suit led to a `
will appear in U.S. District "conspiracy" between the me- �
Court in Salt Lake City to seek dia and Oceanside officials ro ,
restraining orders prohibiting bring the federal government `
the defendants from pitching down on himself and Arvidson. '
new investment plans to cides, "The SEC lawsuit is one that
and from destroying docu- your paper and the nvo employ- .
ments. ees of Oceanside, California in- ';
Vaughn and Arvidson, in srigated with the publication en- "
their written responses to the uded: Bond Buyer,' and is con- '
newspaper, said'the SEC's case trived as a defense," Vaughn �`
is based on inaccurate newspa- said in his written message.
per reports "written without Arvidson offered the same
one scintilla of objective evi- conclusion,saying the lawsuit is
dence�They ftuther allege that "a conspiracy by two female of- ;
the real reason the SEC con- ficials and one city attorney
ducted the investigation stems within the city of Oceanside to '
from a recent controversy in create a defense against a feder-
Oceanside. al defamation lawsuit."
T'he ciry's poli[ical establish- Both Arvidson's and Vaughn's
ment was Uurown into turmoil in written responses focus almost
March after word surfaced that exclusively on the proposalin
Oceanside Mayor Llick Lyon was Oceanside, but SEC officials
pushing key cit'y administrators firmly deny that Oceanside was
to give Alamin power of attor- the center of their investigation.
ney over $100 million of the The cip that started the investi-
city's $135 million investment gadon came from a city in Utah, ,
portfolio. That revelation months before Vaughn's threaa , '
' prompted investigations by the ened lawsuit,Thomas Melton, ,. '
FBI and the San Diego County an SEC attorney,said.
district attorney's office that are Melton said field investiga-
stillunderway, tors gathered information in
Arvidson and Vaughn said Oceanside, as they did in the
- the SEC acrion was a response other 22 local governments.But
to Vaughn's July 21 announce- Melton said he spoke personally ,
ment that he intends to file a with only one Oceanside oFfi- '
multibillion-dollar" libel action cial, Gierhart, who provided a �'
against three Oceanside offi- sworn affidavit. It was one of ;:
cials whom he called "political four affidavits,with others com- ^
enemies" of Lyon, and who ing from the mayors of South `
killed the Alamin proposal in Ogden, Utah; Pocatello, Idaho; ;
Oceanside.They are City Attor- and Idaho Falls.
"We have not filed this law- Vaughn wrote."There is not one
suit in collusion with newspa- shred of evidence that Alamin
pers, or with Oceanside," Inc.has solicited any person." i
Melron said. "That is simply in- Melton disagreed,noting that S
accurate.The basis of this law- city officials had never heazd of
suit is(Vaughn's and Arvidson's) such investments before en-
violations of federal securities countering Vaughn and Arvid-
law." son. And Melton dismissed
No penalties are specified, Vaughn's pledge to give a
but a top SEC official said the $10,000 reward to anyone who
agency could seek $500,000 in can produce a document with
fines on each of three charges Vaughn's signature.
against both men and both of "Every affidavit we have
their companies.No actual dam- filed is accompanied by a letter
ages are possible because no with Vaughn's signature on it,"
city signed a contract. Melton said. "The municipali-
The investments,often called ries did not go and seek out Dr.
"prime bank investment Vaughn.He approached them."
frauds," are said to derive phe- Vaughn's lengthy e-mail
nomenal eariung power through takes issue with a number of fin-
a secretive agreement among er points,including his asseruion
the world's most powerful, or that he never used the term
"prime," banks. In the Ocean- "prime banks" in his discus-
side proposal, interest rates sions with Oceanside city offi-
were pegged at 130 percent a cials,including one session tttat
month, acwrding to Gierhart's was tape-recorded. While the ,
version of the events,a rate SEC term "prime banks" does not
officials said is unpossible in the appeaz;Vaughn refers repeated-
real world. ly in his written materials to
Federal officials and agencies "top 25 S8cP/Moody's rated Mid-
have said that the purpose of term European Banks."
such deals is to gain legal con- In both men's responses to �
trol over lazge amounts of mon- the North County Times con-
ey,which then disappears—of- cerning the SEC lawsuit, they
ten overseas — in banks char- assert that the federal govern- '
tered in countries that do not ment has derailed an opportuni- �
share information in criminal in- ty for cash-strapped cities to �
quiries with U.S.officials. . earn huge profits without risk.
No such allegations have "These actions aze depriving
been raised in the currerit SEC various municipalities of monies
lawsuit. In all 23 local govern- because of erroneous lies and
ments,the deals were suggested misrepresentations," Arvidson
to elected officials, often the said in a fax sent irom his Hunt-
city's mayor, but were stopped ington Beach office. "The law-
wld in all cases after being re- suit in the process of being filed
viewed by legal or financial ex- will reveal the malicious allega-
perts. Vaughn and Arvidson tions and obstructions by the
both contend that they did not Oceanside officials,and newspa-
try to persuade city officials to pers mentioned, and the Bond
do anything. Instead, third par- Buyer magazine,all of whom are
ties introduced Alamin to city obstructing a legal, lawful and
officials, and Alamin simply beneficial program."
tded to provide its expertise in Melton sighed when asked to
high-yield investment pmgrams comment on that statement.
to ciries lacking funds for impor- "They continue to allege and
tant civic projects. � state that there is a program in
"The SEC and its purported existence like this,"Melton said.
declarations under penalty of "There is not.The heart of our
perjury are documents that re- case against them is that inter-
peat a whole host of lies, state- national prime bank programs,
ments that attempt to link or high-yield investment pro-
Alamin Inc. to activities of oth- grams, oc trading with top 25
ers that Alamin Inc. did not au- European banks,is pure ficrion.
thorize, sanction or know about I don't how many times I have
until after they were done," had to say that."
A,12 SATINtDAY,Ju�v 31,1999 (ALL)
Alamin principal responds to SEC ��
Edkor's note: This is a verbatim, or even tendered a document to gossest order.
unedited e-mail from George any municipality or other entiry, [3] The SEC complaint and
Vaughn of Alamin Inc., the Los Ar� or peison is an out right lie,rank its purported declarations un-
geles company that was charged prevaricarion, and a malicious der penalty of perjury are docu-
Thursday by the federal Securities wanton willful misrepresenta- ments that repeat a whole host
and Exchange Commission with vio- tion at first for political reasons of lies, statements that attempt
lating the anU-fraud provisions and and afterwazd to purposely seek [o link Alamin,Inc. to activities "
securities regisUation requiremeMs an SEC judicial acrion for an in- of others that Alamin,Inc. did
of the Securities Act of 1933. tt is juncdon to use as a defense to a not authorize,sancdon,or lmow '
in response to a request from the suit by Alamin,Inc. and its Se- about until after they were
North County Times for an inter- nior Managing Director, Dr. done.An inquiry was made of
view seeking commeM on the SEC Vaughn, for damages for libel
action. and slander, defamadon of the >E-MAIL,A-13
_ . _____ _ _-
July 29, 1999,: Response to
your request for interview and
comment:
Does it really make a differ-
ence whether Alamin,Inc. and
its Senior Mana�ng Director re-
spond; or,Do you really intend
to print azry s[atement utade as
written? Past history to us says
that sensationalism and rank ;
prevaricadon have been the en- �
gine and tools that have ener ,
gized this aashing machine.You
have not one single piece of evi-
dence that George Vaughn or
Alamin,Inc.has done any thing
or said any word except that
which appea�s on a legtiatately j
made tape recording of a meea
ing with the Mayor and two pa j
lidcal enemies of the Mayor.The
lying City Attorney met and �
clearly srated that there was no
legal cause why the city could I
not par[icipate but the ap- �
proach to the project was not �
the"way things are done around
here."
The newspapers and trade �
publication presenting a story to
the public never,ever left a mes- !
sage at this office or any of the '
six Alamin,Inc. offices before %
the story, misrepresen[a[ions,
prevarication's,half truths,and
character assignations of
Alamin,Inc.were published.So,
why should I believe that you
- shall not distort this statement,
take parts out of context to
meet your objective? _
: �:
I do not in writing this re- �
sponse labor under the appre-
hension that your paper will
print verbadm this response as
1ron shall print the allegadons of
the SEC complaint that are
based solely on news paper ard-
cles and the self serving lying
statements of Carole A. Gier-
hart,Carole Gierhart never,ever
disclosed that a tape recording
approved by Mayor Lyon existed
and she confirmed that such
tape recording was a truthfn]]y
report of the statements made
by George Vaughn at such meet-
ing:Therefore,Alamin,Inc.and
its Senior Managing Director
make the Following public state-
ment:
I21 Ia]The words"prime bank
notes"have never been used by
George Vaughn and no Alanvn,
Inc. personnel the best of my
lmowledge because:(1]What is a
prime bank by definition of the d
Federal Reserve System in the �
US or the Bank of International
Settlements (B7S) in Europe,or
the Bank of Engiand,CH bank-
ing commission in Bern, CH, �
Bundesbank,or any other cen- r
tral bank any where in the �
world?There is not such bank �
and never has been. So, why t
would educated people with ad-
vance degrees in banking, fi- '.
nance,and monetary policy use a h
term that describes nothing? ''
Your papers ascribes to be the �
description of an idiot, and is
therefore among other such dec-
lararions a a defamatioa
[b]There is not one shred of
evidence that Alamin,Inc. has
solicited any person, corpora-
tion,municipality,or any entity
under any descriptive name ro
invest funds in any project,pro
gram, security, and/or situation
that ask or requires money to be
expended for any purpose.The
allegations in the SEC com-
plaint from what I understand
from hearsay as to the conten[
of the complaint that alleges
that Alamin, Inc. and/or Dr.
Vaughn solicited, engineered,
energized, approached, wrote
communications to induce paz-
ticipation,or did any act [o in-
duce investment in any contract
or other instruments classified �
as a security under the SEC acy
/ �-MAI L affidavit that George Vaughn has promulgated without any ob-
communicated a document to jective corroborating evidence,
ContlnueatromA•1z her by telefacsimile. That docu- nothing but bald assertions by
ment is a forgery. My fax ma- people with agenda's for self
chine has only and has never had serving purposes.
Alamin,Inc. in February, 1999. any name but Alamin,Inc.on it. Alamin, Inc. and Dr. George
The attached except of the a Never has the name George Vaughn, its Senior Managing
meeting of the board of Direo- Vaughn been on the from dis- Director shall oppose this SEC
� tors was given with a statement play.These are the kinds of falsa suite a vigorously as is humanly
� of the protocol, copies are at- hoods and lies that your paper possible and as I told the SEC
tached hereto for your edifica-
tion. Please note that neither
document contains any request
for the use of any municipal
funds or securities owned by a
municipality or any other per-
son,agency,or entity. Please al-
so consult the tape of the meet-
ing that shows that no solicita-
tion was made.The response to
the inquiry to a third party was
an invitation by Mayor Lyon of
Oceanside to Dr. Vaughn to
, come and to brief the mayor
based on the two dociunents at-
tached hereto.The only refer-
ence to the bond portfolio was
to inquire about whether the
city could reap more benefit if it
used its portfolio in the Bank of
New York,NY,NY,The response
was that if it so desired,no funds
would be expended for the repo
contract to generate for the
trust trading funds in Europe;
othenvise,nothing in the way of
expendinue of funds or utiliaza-
tion of any city asset is required
(Alamin,Inc. is not altogether
altristic. It is be remunerated
out of European trading profits.
The tape recording says in
minute detail exacdy the policy
of the Board of Direcrors of
Alamin,Inc. and the derivative
Statement of protocol. Alamin,
Inc. has never, ever circulated
any document to any ci[y al-
though solicited by some city at-
tomeys to respond to long list of
questions. riny inquuies made to
Alamin,Inc.were referred to the
party that Alamui,Inc.lrnew had
first made the assertion that pro-
duced the letter of inquiry. No
= entity can produce a document
with the signature of George
Vaughn on it.Alamin,Inc. shall
pay a rewazd of US$10,000.00 to
any person who can produce
such a document sent to them by
! Alamin,Inc.or Dr.Vaughn. _ _
[4)The allegations of the SEC ^
complaint aze a rehash of stories
that have appeared in your pa-
per, articles that were written
with out one scintilla of objec-
tive evidence, arHcles that were
written without any effort to ob� '
tain and truthfully print the
� Alamin,I�c.statemenC of the ab- �
solute facts, to present the twu
. documents attached hereto,or to
rebut the Gierhart lies or the lies
writ[en in}rour paper,sometimes
as spoken quotes but more often
as your statement of fact
The SEC atrorney claims that
his allegation that George
Vaughn had been disbarred in
the state of California is on in-
Formation and belief [accredit-
ing it to your newspaper],know-
ing that George Vaughn,volun-
tarily stopped the practice of
law after almost 30 years to bat-
tle cancer which the doctors
said George Vaughn would die
of within one year after it dis-
covery in December 1980. Now,
is that truth?
The SEC lawsuit is one that •
your paper and the two employ-
ees of Oceanside,California insd-
gated with the publication enti-
tled: `Bond Buyer'; and is con-
trived as a defense to a notice,
though not as specific as Section
48[a� of California Code of Civil
Procedure requires for demand
for retraction,dces put your pa-
per on nodce that the refinement
required by statute shall come
and the suit is sure to follow
[5] Why have you not in-
quired of the SEC lawyer at the
behest o£ the above referenced
proposed defendants in a multi-
billion US dollar defamarion suit
who generously and gratuitously
provided you with notice of fil-
ing and a copy of the documents
purportedly Filed in the Federal
District court in Utali as to t�ow
he proposed to prevent the court
from dismissing the suit filed
that the court is bound to do on
the authority of United Liberty
Life Ins. Co. v.Finnacle W. Capi-
tal Corp. [1993, SD OhioJ 149
FRD 558, CCH Fed Secur L.
Rep, section 97746,25 FR Sery
3d 2379 and Berube v. Brister
3[1991, DC RIj 140 FRD 258,
tAdopted[DC RI]140 FRll 1258?
' [6]'If an objective examina-
tion of the complaint and t6e so
jcal�ed statements under oath in
'support of a modon £or a TRO
and preliminary injunction are
-examed objectively in the light
'of the public evidence, cursory
examination shall disclose that
there is no exhibit of any com-
municarion that Alamin,lnc. dis-
patched to any city or city offi-
cial or to any person with in-
struction to deliver such commu-
nication or documen[to any city
official or other governmental
subdivision.
The city attorney in Bremen-
'ton (I am told� has executed an
lawyer yesterday on the tele- have seen before.You therefore ter I had left for a week sched-
phone: "I am going to seek at cannot allege recent con- uled two weeks ago for 12:30
the end of this an indictment of trivance. p.m. to day in Longbeach, Cali-
him as well as his coconspira- I am also aware that because fornia.
tors who have instigate this law- it is now 6:30 p.m.PDT you have
suit to create a defense to our already printed a sentence: Submitted,
suit for defamation. Our posi- "telephone calls were not re- AI,AMIN,INC.
rion and all our representations sponded to." Now, that state- S/George L.Vaughn
are contained in the attached ment is false,is it not?Your re- George L.Vaughn,PhD,JD
documents,copies of which yrou quest came in the afternoon af- Senior Managing Director