FROM WALL STREET TO FRONT STREEET
The “Watergate-style” investigation of the MLGW-TVA bond deal drummed up by members of the Memphis City Council in January has turned into a document dump that looks like it will wind up on the desk of Councilwoman Carol Chumney.
Chumney, the only attorney on the council, said Monday she would press on but reserve judgment until she reads the responses to the council’s inquiry.
The responses including the ones from Mayor Willie Herenton and former MLGW president Herman Morris do not reveal any smoking gun, contrary to one broadcast-media report. They do, however, provide details of the flurry of activity between August and November 2003 as financial firms and lawyers lobbied the mayor for a share of the bond business. As previously reported, Herenton personally got involved to see that local and minority firms and individuals got a bigger share.
Some of the details contained in various responses turned in so far:
á The firing of Morris is recounted by MLGW board member James Netters:
“While the three of us were in the conference room together, the mayor handed Herman Morris a letter and me a copy of the same letter. The letter stated that the mayor was pleased with Herman Morris’ work as president of MLGW but he did not feel that Herman would take the company where [the mayor] wanted the company to go. There was no other reason given for the termination.
“After a long pause, Mr. Morris thanked the mayor for having let him serve in his cabinet and said to him, ‘If there is anything I can do for you in the future, let me know.’ We left the office without any further discussion.”
á In his two-page response, Herenton answers a simple “no” to a question about involvement in the deal of his son Rodney, an employee of FTN Financial, which lobbied heavily for a bigger share of the deal. FTN Financial officials, in their response last week, also said Rodney Herenton was not involved and did not benefit from it.
Herenton also answered “no” to the question, “Did you make any promises to the Mays Bird law firm, or any of its attorneys, to use them [on the deal]?” Richard Mays is a Little Rock attorney who made a campaign contribution to Herenton last year and was named “special counsel” to the city on the bond deal.
á In a three-page letter supported by e-mails and documents, Morris gives his first public account of the restructuring of the deal, including a meeting in the mayor’s office on August 26, 2003.
“When I asked whether Rodney Herenton was interested, the mayor stated Rodney could not be a part of it,” Morris wrote. Morris also said no tape recordings of conversations about the deal “are in my possession.”
á FTN Financial began lobbying Morris and Herenton in August 2003 when First Tennessee CEO Ralph Horn, according to Morris, “contacted me and encouraged a significant level of participation for FTN, as a Memphis-based firm, in the transaction.”
FTN’s efforts hit a responsive chord. On August 26, 2003, Herenton wrote Morris, “With respect to co-managers, Morgan Keegan and FTN Financial are more than qualified.”
The next day, Herenton followed up with another letter containing a detailed breakdown of the structure of the bond deal, reducing Wall Street’s share from 65 percent to 35 percent. As previously reported, Herenton added, “It is also desirable that Cheryl Patterson and Richard Mays be included as additional bond counsels.”
á Herenton’s reaction set off alarms in New York and Memphis. J.P. Morgan revised its allocation but not enough to satisfy Herenton, who suggested he might recommend that Goldman Sachs, another New York firm, replace them. J.P. Morgan, in turn, threatened to “sue, contact the governor and senators and pull out all the stops,” according to Morris. FTN Financial, meanwhile, worked feverishly to solidify its position.
“It seems every day brings a new variation on structure and individual firm participation on the power bonds,” FTN Financial vice president Deke Iglehart wrote to then-city finance director Joseph Lee on September 19, 2003.
The inclusion of FTN Financial upset its Memphis rival, Morgan Keegan, where Rodney Herenton used to work. Gavin Murrey, director of fixed-income banking for Morgan Keegan, wrote Lee on September 29th questioning the bank’s credentials in public finance.
Two weeks later, the final arrangement giving Memphis firms 50 percent was essentially in place. Morris recapped the events in an e-mail to another MLGW official:
“I spoke with the mayor this morning and got quite a different reaction to J.P. Morgan’s participation He was more supportive of J.P. Morgan in light of their proposal of a new allocation more consistent with his first suggestions.”
