P.G. Corbin & Co. and Lennard Cuenco, its former vice president, aredenying allegations that they wrongly told the West Basin Municipal Water District inCarson, Calif., that the interest rate swap it entered into in October 2001 was a fair-market value transaction.
The Philadelphia-based financial advisory firm and Cuenco, who worked in the firm'sBenicia, Calif., office, denied the charges in separate documents that were recentlyfiled in response to a lawsuit the district filed against them in July.
The suit, which was filed in the Superior Court of the State of California for thecounty of Los Angeles, charges the firm and former official with negligence,professional malpractice, breach of fiduciary duty, breach of contract, and negligentmisrepresentations.
District officials claim that P. G. Corbin told them that it was not possible tocalculate the compensation that Rice Financial Products Co., the swap provider, wouldreceive from the swap transaction and then wrongly certified that the transaction wouldresult in a fair-market swap.
Judge Cary Nishimoto has scheduled a status conference with the lawyers to the partiesfor Dec. 8 to determine how to proceed with the case.
P.G. Corbin is being represented by Steefel, Levitt & Weiss lawyers based in LosAngeles.
Cuenco is being represented by Keker & Van Nest LLP in San Francisco, the same firmrepresenting Frank Quattrone, a former Credit Suisse First Boston LLC investment bankerwho had been charged by U.S. attorneys with obstruction of justice. A mistrial wasrecently declared in that case.
The West Basin case concerns a swap transaction the district entered into in October2001 to reduce the risk from $141.8 million of adjustable-rate certificates ofparticipation that it had issued in 1997 and 1999. Rice Financial told the district thatthe "reduced variance enhanced swap" would provide $1.5 million per year in net paymentsto the district.
The district hired P.G. Corbin to help structure and price the swap. The firm repeatedlyclaimed that Rice's compensation was incalculable, according to district officials.
The district later hired two derivatives firms to evaluate the transaction - CDRFinancial Products Inc. in Beverly Hills, formerly Chambers, Dunhill, Rubin & Co., andSwap Financial Group in South Orange, N.J. Those firms concluded that Rice would makefar more on the swap than would be earned by most major recognized swap dealers.
CDR estimated Rice would make 65 basis points, while most dealers would have only madefive to 10 basis points, according the district's lawyers at Lemieux & O'Neill in LosAngeles.
But Nicholas J. Wenbourne, from the Steefel firm, which is representing P. G. Corbin,said Friday, "We deny the allegations. We don't think the charges are well founded."
In a separate but related matter, the Justice Department in August filed a nine-countsuit against former West Basin Water District Board member Tyrone Smith over the swaptransaction. That suit, which was filed in a federal court in Los Angeles, alleges Smithextorted $25,000 from M.R. Beal & Co. through one of Beal's consultants in return forassuring that Rice Financial would be hired to do the swap transaction and that Bealwould receive $250,000. Beal officials said they introduced Rice Financial to thedistrict. Rice Financial officials said that Beal worked on the swap transaction withit.
