"I don't care about munis anymore. I've moved onto other things," Michael Lissack said earlier this week.
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True, it has been more than five years since the banker-turned-whistle-blower was fired by the former Smith Barney Inc., and his 14-year career in investment banking came to an abrupt halt.
But yesterday, Lissack's role as whistle-blower in the yield-burning scandal came home to roost as the federal government announced a long-awaited global settlement with municipal securities firms that is likely to net him up to $20 million.
Lissack, 41, and his attorneys will not reveal exactly how much he is to receive from the agreement, three previous global federal yield-burning settlements, and a settlement Lazard Freres & Co. reached with the Los Angeles County Metropolitan Transportation Authority in 1998.
But his take in each of these cases was to be 15% to 25% of the settlement amount because the firms and Lazard were named in False Claims Act suits filed by Lissack in federal and California courts. Both the federal and state acts allow private citizens who believe fraud has been committed against the government to sue on behalf of the government and to share in any award.
So while Lissack, who went public with allegations of yield burning, conflicts of interest, fee sharing, and other abuses in the municipal market in early 1995, became a pariah on Wall Street -- and because of his own misdeeds was ultimately barred from the securities industry by federal regulators for at least five years -- he stands to make millions from the millions his suits forced securities firms to cough up to settle yield-burning allegations.
FBI'S 'FRIEND FROM FLORIDA'
While yield-burning concerns first surfaced in the late 1980s, Lissack really grabbed the attention of the federal government in December 1993 when he made an anonymous call to the Federal Bureau of Investigation claiming Lazard had engaged in yield burning in connection with a Los Angeles MTA refunding. Lissack says he was upset that the government had failed to uncover yield-burning problems in a raid of the MTA offices made in connection with an ongoing investigation of former Lazard financial adviser Mark Ferber.
That was the beginning of a 14-month-long relationship between the FBI and its "friend from Florida" -- a time during which Lissack suffered a severe bout of depression, was given a six-month leave of absence by Smith Barney, attempted suicide, and watched his marriage fall apart.
Lissack was fired from Smith Barney in February 1995 after he warned the firm in memos that he was "no longer willing to ... keep quiet" about questionable practices in the municipal market. Memos he wrote to a supervisor claimed the firm had failed to tell Dade County, Fla., about a reverse interest rate swap that could have saved the county millions of dollars and that Smith Barney had talked about "trade-offs" in municipal business with Ferber, among other things. Lissack testified about the Ferber matter before a grand jury in Boston in March 1995. Smith Barney denied the allegations and claimed Lissack was a disgruntled employee who was disappointed with his compensation and bent on retaliation.
Within a few weeks of being fired, Lissack and his attorneys at Phillips & Cohen filed two secret False Claims Act suits. The first was filed in a federal court in New York City against more than a dozen major Wall Street and regional firms. The second was field in a California court against Lazard alleging that the firm had engaged in yield-burning abuses. He says he discovered the False Claims Act from an article in the Wall Street Journal and realized he could make money from whistle-blowing.
LIGHTING THE SPARK
Soon after the Securities and Exchange Commission became aware of the suits, it launched a nationwide yield-burning investigation, demanding firms supply detailed information about their practices of selling open-market Treasuries to issuers for advance refunding escrows.
Lissack claims he went public because his conscience was bothering him. "I was blowing the whistle on practices by securities firms that I saw lining their coffers at the expense of the federal government," Lissack said in a July 1995 op-ed piece for the New York Times.
But he was not without blame. He also took part in alleged scams. He admitted in the op-ed piece: "I got sucked into a pattern of doing whatever it took to make money for the firm and ... for myself."
In February 1998, Lissack agreed to be barred from the securities industry for at least five years and to pay $30,000 to settle SEC securities fraud charges in a case involving Dade County. The commission charged he misled the county about the savings that could be achieved from an interest rate swap, compared to a fixed-rate transaction.
In mid-1998, the district attorney's office for New York County arrested Lissack on charges of harassing Smith Barney executives. He later pleaded guilty to a charge of second-degree harassment. He had been accused of sending anonymous e-mails to Smith Barney employees encouraging them to make a wave of phone calls and e-mails to the firm's executives.
Soon after he left Smith Barney, he established a "Municipal Bond Scandals Homepage" and a separate Web page on Smith Barney, containing newspaper articles about scandals and allegations. The pages brought about copyright concerns and threats from the firm and were eventually shut down.
Lissack graduated magna cum laude and Phi Beta Kappa from Williams College in Massachusetts and holds an MBA from Yale University School of Management and a doctorate from Henley Management College near London. He recently told Bloomberg News that his current net worth is about $10 million.
He said he intends to keep $4 million of whatever he collects from the settlement, use an additional $10 million to pay legal bills, and donate the rest to the Michael Lissack Foundation, one of two nonprofit organizations he has set up in recent years, and which has already entered into an agreement to endow a professorship of ethics at Williams College.
Lissack, who divides his time between Boston and Coral Springs, Fla., has also established three for-profit companies that market software programs and products. The former investment banker says that he is currently trying to market one of his products to Bloomberg L.P., Reuters, and TheStreet.com. The product, he said, will take all of the messages on equities from chat rooms and message boards, scan them for relevance, and categorize them according to priority.
