BOSTON - A senior Wall Street executive testified on behalf of former Lazard Freres & Co. investment banker Mark S. Ferber yesterday, telling jurors that her conversations with Ferber in the early 1990s about the Massachusetts Water Resources Authority's upcoming oral interviews for underwriter candidates were appropriate and did not violate a so-called blackout period.
Elaine La Roche, a senior vice president at Morgan Stanley & Co. and also chairwoman of the Public Securities Association, said Ferber gave her "general" indications of what topics the MWRA would focus on during the orals. But he never told her, she insisted, what the questions would be, nor did he advise her of the answers.
Ferber is accused of illegally steering the swaps business of his financial advisory clients, including the MWRA, to Merrill Lynch & Co. Prosecutors allege that Ferber accepted a $1 million retainer in a swap fee-splitting contract with Merrill as payment for delivering the swaps business to the firm.
Earlier in the trial, Merrill managing director Jeffrey Carey said that he spoke with Ferber during the 1989 MWRA blackout period, which was noted in the authority's request for qualifications. During the conversation, Carey testified, Ferber advised Merrill on how to present itself during its oral interview for an MWRA book-running slot.
The defense is trying to show that Ferber never cut Merrill any breaks with his financial advisory clients, and that by and large he treated all firms seeking underwriting business from those clients equally.
"In preparation for the short-list presentations, Mr. Ferber as financial adviser to the MWRA, indicated that he was going to be talking to a number of the underwriters who had been selected ... for the short-list presentations," La Roche said.
At the time, La Roche was head of public finance at Morgan. She is now a senior management executive who reports directly to company president John Mack.
"I cannot distinguish between conversations, but I do recall a conversation which described timing, place, and processes that would be taking place in the short-list presentations," she said.
Ferber, La Roche said, told her that the MWRA would be focusing on three concerns it had about the firm: Morgan's commitment to the municipal bond industry; its retail sales capability; and its pricing capability.
The Lazard partner's comments about Morgan Stanley's upcoming presentation "were very general in terms of a strong presentation versus a weak presentation," La Roche said. "Never did I know where our (written) response was versus the others."
Morgan Stanley was selected as an authority "special bracket co- manager" at the conclusion of the 1990 selection process. The firm was named to a lower spot when the authority selected a new underwriting team in 1992, she said.
La Roche's testimony drew heated questions from assistant U.S. attorney Brien O'Connor, who suggested on cross examination that La Roche was, among other things, misreading the RFQ's blackout provision.
But La Roche fired back that O'Connor should "read the document in its entirety." She argued that the RFQ prohibited contact between underwriter applicants and authority officials other than MWRA chief financial officer Philip Shapiro only until written responses were submitted. After that, she said, she interpreted the RFQ to permit contact.
"Once the written request for qualifications was received and until the day responses were submitted, I did not have any discussion with Mark Ferber," she said.
But O'Connor brought up a memo acquired by government investigators that La Roche wrote detailing her conversations with Ferber. O'Connor implied that the memo, as well as statements La Roche made to investigators, contradicted her testimony yesterday.
"Is it fair to say that the testimony that you've given on direct examination is because you felt a need to come up with an explanation for why you had discussions like you did before the orals with Mr. Ferber?" O'Connor said.
"That's an insult, sir," La Roche snapped. "No, I did not."
Ferber is facing 63 counts of mail fraud, wire fraud, and other crimes in connection with alleged criminal failure to disclose a retainer and swap fee-splitting agreement with Merrill Lynch. He is expected to take the stand in his own defense sometime this week.
Right now, Ferber's former associate Claire Waddlington, now an investment banker at First Albany Corp., is on the stand. She is expected to continue testimony today.
