An attorney who is an expert in securities litigation believes the Florida State Board of Administration has a claim against broker-dealers that sold the agency unregistered securities in transactions that are not exempt from registration, SBA acting executive director Bob Milligan said last week.

The board hired Michael Pucillo, a partner at Berman DeValerio Pease Tabacco Burt & Pucillo in West Palm Beach, to determine if it could take action against firms that sold it some risky investments. Some of those were downgraded within weeks of their purchase late last year. The law firm specializes in securities fraud and antitrust law.

The investments led to a run on the local government investment pool by depositors who feared the securities were related to the subprime mortgage debacle. They were, in fact, asset-backed commercial paper, some with subprime exposure. The purchases were made when the investments were within rating guidelines, but they were downgraded shortly after being purchased. Some have since defaulted and the SBA has renegotiated repayment schedules. Some of its portfolios have lost considerable market value.

The brokerages at the center of Pucillo’s investigation are JPMorgan, Lehman Brothers, and Credit Suisse First Boston, Milligan said last Wednesday during a meeting of the SBA’s trustees. The trustees — Gov. Charlie Crist, Chief Financial Officer Alex Sink, and Attorney General Bill McCollum — are all statewide elected officials.

Milligan said that Pucillo would try to obtain tolling agreements from the broker-dealers. Those agreements, necessary because certain applicable statutes of limitation apply in July, preserve the SBA’s rights.

“A tolling agreement will enable the parties to continue to exchange documents and engage in appropriate dialogue and analysis about resolution of this matter,” Milligan explained. “The SBA and the broker-dealers know that litigation may be imminent. If the SBA is unable to secure the necessary tolling agreement, and the continued cooperation of the broker-dealers, a suit can and will immediately be filed.”

Pucillo was “pretty confident” that the broker-dealers would cooperate, Milligan said.

“I think this is encouraging news,” responded Sink, who in an earlier meeting said she believed someone knew something about what was going to happen with the troubled securities because of how quickly they were downgraded.

They are also some of the same securities that the Securities and Exchange Commission is investigating. On Feb. 25, the SEC sent a letter to the SBA asking for a host of documents concerning investment guidelines and restrictions, brokers, securities purchases, and fund qualifications for the Local Government Investment Pool, the Florida Retirement System Pension Plan, and portfolios that the SBA manages for Citizens Property Insurance Corp.

The SEC sought documents relating to the purchase of more than 10 specific securities, as well as information about how the state agency decided to make purchases of asset-backed commercial paper and certificates of deposit. The commission also requested documents about the ability of some SBA funds to acquire securities issued under Rule 144A of the Securities Act of 1933, which provides a methodology for selling certain securities without registration.

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