DALLAS — Harris County, Texas, is seeking $484,000 through mediation with Morgan Stanley for alleged overpayment of fees after reaching a $659,000 settlement with UBS, officials said.

Harris County Commissioners approved the UBS deal on Tuesday after months of negotiation. Arbitration with Morgan Stanley could begin this month, according to Douglas Ray, senior assistant county attorney.

“This is actually the last piece of the puzzle if we can reach an agreement with Morgan Stanley,” said Ray, whose office has been investigating the fees approved by former Harris County finance director Edwin Harrison.

Harrison has pleaded guilty to felony charges in a separate case involving his personal finances.

The disputed fees were for trades in federal bond programs that made up the county’s investment portfolio, according to Ray.

The investigation has turned up no irregularities in underwriting or related fees for the county’s own bond issuance, he said.

While Morgan Stanley maintains that the trades were lawful, “our hope is to settle this in a way that is mutually satisfactory to both parties,” said spokesman Jim Wiggins.

Harrison’s attorney, Chip Lewis, called the proposed settlements “ransom fees” and said the investigation of the longtime county finance director was “politically motivated.”

“I’ve looked at all the trades and they stand up to all the guidelines,” Lewis said. “Every trade was lucrative and beneficial for the county.”

Michael Bartolotta, vice chairman of First Southwest Co. and outgoing chairman of the Municipal Securities Rulemaking Board, is the county’s financial advisor.

Ray said that Bartolotta aided the probe and was not involved in any of the questionable trades.

The Federal Bureau of Investigation is reportedly investigating fees paid to two brokers involved in the investment transactions.

Former UBS broker Royce Simpson handled 17 multimillion-dollar investments from 2007 through 2010 and traveled with Harrison to Costa Rica, where they were joined by other finance and legal executives, investigators said.

Morgan Stanley Smith Barney broker Howard LeDet also traveled with Harrison to Costa Rica and sold Harrison a Cadillac Escalade for half its Blue Book value in 2008, county investigators said.

Simpson and LeDet have declined comment.

Lewis said that Harrison paid his own way to Costa Rica and that the price his client paid for the Cadillac matched an offer from used-car retailer Carmax.

“Mr. Harrison never received any payments, kickbacks, or whatever you want to term anything,” the attorney added.

The county has also recovered about $300,000 from bond counsel firms whose expenses Harrison paid on bond-related trips, Ray said.

The firms involved are Greenberg Traurig, Andrews Kurth, Winstead, Bracewell & Giuliani, and Fulbright & Jaworski.

In the wake of the investigation, all expenses for bond-related travel are now routed through the county attorney’s office rather than the finance director’s office, Ray said.

Lewis said that Harrison followed established practice in covering the bond attorneys’ travel expenses.

In the case involving his personal finances, Harrison pleaded guilty to felony charges of making a false statement to obtain credit and tampering with a government record.

His wife, Linda Sue Harrison, pleaded guilty to fraud and perjury charges. Both were sentenced to probation.

Harrison, who has handled hundreds of millions of dollars worth of bond deals, was demoted a year ago after being indicted on personal theft and fraud charges that involved a disabled sister’s estate. Lewis said Harrison admitted only that he listed an encumbered asset as unencumbered and that other charges were dismissed.

The investigation of the broker fees began when a staff member in Harrison’s office brought them to the attention of the county attorney’s office, according to Ray.

A forensic audit by the firm Parentebeard confirmed overpayments from March to September 2010 and recommended repayment from Morgan Stanley and UBS.

The audit found that Harris County paid based on bond prices above par, even though the bonds were trading at par or below on those days. The county found that the higher-priced bonds padded the brokers fees to the tune of nearly $1 million.

While the county believes it should have been allowed discounts based on the volume of its transactions, it is only requiring payback of fees that were based on above-par prices, Ray said.

The audit found that the county failed to use the required competitive bidding when buying and selling investments.

Ray said that before the investigation, UBS and Morgan Stanley handled about 80% of the trades in the county’s investment portfolio. Since then, the two companies’ share has fallen to about 17%, he said.

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