The Banker Who Broke the Law
William Thompson, the ex-Board of Education president and investment banker who's running for city comptroller, celebrates his 'real world financial expertise' in his campaign literature, contending that he 'spent years underwriting billions of dollars in municipal and state bonds' as a senior vice president for a Wall Street firm. But a 'Voice' investigation has revealed that Thompson broke a half a dozen securities regulations over his vaunted eight-and-a-half-year banking career, raising doubts about his qualifications for the city's second most important elected post.
In fact, Thompson, who held only political staff jobs before getting a $135,000-a-year banking position in 1993, is today operating with a suspended securities license. He had no license whatsoever from January 1993 to December 1995, while he was vice president at George K. Baum & Co.the period that he illegally participated in most of the bond deals described in his literature. Since magically appearing as a banker-without-background nearly a decade ago, Thompson has missed seven key securities test dates, repeatedly jeopardizing his ability to do business.
In addition to these questionable practices, the 48-year-old self-described "financial consultant" is currently employed by a firm, the Liati Group, that is headed by Michael Geffrard, a former first deputy city comptroller who was forced to resign in 1995 after a scandal. Geffrard was the target of a probe by the city's Department of Investigation, which recommended his prosecution to federal authorities, according to sources close to the case. He was never indicted.
The son of a powerful Brooklyn judge, Thompson was the youngest deputy borough president in city history through the '80s and, prior to his resignation this March, was widely regarded as an astute and genial Board of Ed president. These new issuesincluding the fact that he filed his taxes late in four of the last five years and had to pay by installment three timesmay shake up the otherwise desultory race between him and City Councilman Herb Berman. The picture that emerges from this Voice investigation is of a candidate so sloppy in his personal and professional life that he may not be up to the task of running the city's multibillion-dollar books.
In a two-and-a-half-hour interview with the Voice, Thompson attempted to limit his role with the Colorado-based Baum company, insisting he was "not an underwriter" and "not a broker." Though he conceded that he "was representing the company's merits to city and state officials," he suggested that he might not have had to obtain a license to do so.
This half-hearted assertion is belied by the clear mandates of the National Association of Securities Dealers, which requires that "an associated person of a broker/dealer who effects or is involved in effecting securities transactions" must pass the test, specifying the inclusion of anyone who "participated in the solicitation" of business. It is also implicitly disputed by Joe Bosch, a Baum vice president who worked at Thompson's side and remains his friend, but says, "In the capacity I functioned in and the capacity he functioned in, he needed a license. I don't know how soon he would have had to obtain that license."
Finally, it is countered by the fact that Baum registered Thompson as a General Securities representative when he was hired and signed him up for the six-hour licensing exam six times during that three-year period, forfeiting a $200 fee each time he failed to take it.
However, Bob Dalton, the Baum executive in Colorado who hired Thompson and still praises him, contends that "while it would have been nice if Bill had a license," the company had a system that permitted him to work without one. Saying that Thompson functioned as part of "a team with Bosch," Dalton insisted that any unlicensed Baum employee working in Thompson's capacity had to have "a registered person with them at any meetings." Of course, Dalton's imaginative explanation might have been prompted by the fact that it was as improper for Baum to retain Thompson so long without a license as it was for Thompson to work without one.
Asked if anyone else in the company's history had gone without one for almost three years, Dalton said that Baum had employed others who'd "taken a year or more to get a license." Dalton acknowledged that he could not cite any NASD rule that permitted this "team" approach and confirmed that the company had scheduled Thompson for tests time and again.
Thompson, who has championed tough new testing standards for third- to eighth-graders, failed to take the Series 7 exam for a GS representative license on June 5, 1993, June 1, 1994, October 31, 1994, April 21, 1995, and September 20, 1995. He finally passed the exam on December 7, 1995, with a score of 76, six points above the passing grade.
Thompson mysteriously left Baum five months after finally getting a license, and now he will not answer questions about the firm's reaction to his testing shortcomings, saying only that his departure was by "mutual" agreement. He attributed his missed tests to "not having enough time."
In addition to working at Baum, Thompson was a member of the Board of Education (which entitled him to a $20,000 stipend) through most of this period, though never its president. Board officials say he was an occasional visitor at 110 Livingston prior to his July 9, 1996, elevation to president, and was there almost daily afterward. Ironically, Thompson was quoted in news stories as saying he gave up his banking job to devote himself full-time to the board presidency, but he left Baum more than two months before his surprise, Rudy Giuliani-engineered, election by the board majority.
Thompson's apparent test aversion continued even after he passed the licensing exam. He has twice failed to meet a minimal continuing education requirementwhich involves a three-hour testresulting in the temporary suspension of his ability to engage in any securities business. His license was listed as "deficient" and "inactive" by the NASD on September 28, 1996, and was only restored on August 7, 1998, when he finally met the initial continuing education requirement, almost two years late. He was "deficient" again on September 28, 1999, when he failed to meet a second continuing education requirement, raising the number of tests he's missed to seven.
Unless Thompson completes his outstanding continuing ed exam by September 28roughly two weeks after the primaryhis license will finally be terminated. He is "prohibited" now under NASD regulations "from performing any duties and functioning in any capacity requiring registration." However, both times that the politically-wired Thompson was barred from doing business because of a deficient license, he was still able to get a jobin 1998 with Berean Capital, a Chicago-based firm, and this year, with Liati, a new Wall Street firm not involved in municipal bonds.
Calling the continuing ed test "a walk in the park," Thompson dismissed his inattentiveness to the requirement imposed by a half a dozen regulators, including the NASD, the New York Stock Exchange, and the Municipal Securities Rulemaking Board. "I didn't think I needed my license," Thompson added, though he appears to have illegally "parked" it at Berean in order to avoid losing it.
Thompson admits that he did no deals for Berean during the three years he was registered there, nor was he compensated. By his own account, he did not even travel to their Chicago office once, only meeting with Dudley "Betsy" Brown, the head of the firm, in New York. Yet he was listed as a general securities rep with Berean from April 20, 1998, until May 21, 2001.
Thompson was hired by Berean a few days before his license would have lapsedon April 30,1998if he did not find a NASD employer. A license is automatically canceled if it is not used for two years and Thompson had not been registered with a firm since he left Baum on that date in 1996. If canceled, the only way Thompson could have returned to the field would be to pass the original Series 7 test all over again.
Berean's Brown was evasive about Thompson in a Voice phone interview, saying he was "hired on a commission basis" and that "he'd find a deal for us and bring it to us." When told that Thompson did not report any earnings from Berean on the disclosure form he filed with the Board of Ed, Brown shifted and declared, "I didn't say he got any deals for us. I just said I couldn't remember." After saying he also couldn't recall why Thompson left just a couple of weeks ago, Brown ended the conversation and didn't respond to further Voice messages.
For his part, Thompson adamantly denied he parked his license at Berean, contending that the company hired him "because Brown was thinking of coming to New York and I was going to run his office there." Not only did the company never do business here, but Thompson's license was suspended at the time Berean hired him and suspended a second time while he was employed by them. In fact, Berean's own license in California was revoked during this period and the NASD fined the firm $5000 for a continuing failure to maintain "the minimum required net capital" to do business anywhere. These are hardly signs of a business looking to expand into the nation's biggest and most competitive public finance market.
NASD regulations forbid companies from registering a person "where there is no intent to employ such person in the member's securities business," and bar the retention of anyone "no longer functioning as a representative." Thompson is deliberately vague about how he got the jobsaying only that he "was introduced to Brown by mutual friends." That's also all he'll say about how he got his first job in finance with Baum when he had no background in the field.
Thompson's final end run around securities rules was his 1999 assumption of a position on the board of Liati, a firm that soon after sought NASD registration to do limited partnership financing deals. He became a director of the Liati board long before his recent hiring by them as an employee. According to Thompson's tax returns, he earned $84,100 from Liati in 1999 and 2000.
The problem is that Thompson was registered as a Berean representative for the same two years. NASD regulations require the disclosure on Berean filings of any other business relationship of their employees, but Thompson's Liati role was never listed. It is illegal to maintain an undisclosed business relationship with two securities firms at the same time.
In addition, when Thompson moved his GS registration to Liati this year, it appeared to be his second attempt to park it. Thompson says he gets "the same compensation" now at Liati as he did when he was only a director and that he does "irregular" work there. He has no license to do the limited partnership deals Liati specializes in, and Liati has no license to do the bond deals that he once did.
With a history this checkered, it's surprising that Thompson makes so much of it when citing his credentials for a job that demands a focus on just the sort of detail he seems to blithely ignore. His claim that he did billions in bonds is pure hyperbolesince Joe Bosch, the Baum official who worked closely with Thompson during the only period that he did bond work, said the firm was getting only $30 million to $40 million in city orders per bond issue. While not contesting Bosch's estimate, Thompson insisted that "if you're part of a $2 billion deal and you took out $200,000 in bonds, you were still involved in a $2 billion deal." Nobody in the industry, Thompson said, "pieces out the parts," an implicit truth-in-advertising warning that makes all his candidate claims dubious.
Thompson's two and a half years on the Liati board and his current GS registration with Liati are a disquieting indication of his close ties to Liati CEO Michael Geffrard, who might well become an influential player in city financial circles again should Thompson win. Thompson acknowledged that he "brought Michael to Baum" in 1995, shortly after Geffrard was forced out of office by Comptroller Alan Hevesi. Thompson said he invited Geffrard to use a desk at Baum's World Trade Center office and persuaded Baum to give him a small consulting contract "to review our sales desk."
Hevesi's counsel conducted an investigation of Voice allegations that Geffrard had illegally obtained an insider price and bank mortgage on a westside apartment, and found, according to sources familiar with the report, that he had "falsified" key documents to make this highly favorable personal deal. News accounts indicated that Hevesi's report was sent to the Department of Investigation, which was conducting its own probe. Hevesi would not confirm or deny at the time that he'd asked Geffrard to quit, but the investigation and the resignation were simultaneous events.
Thompson says he "knew Hevesi did an internal investigation," but he was untroubled by it when he reached out to Geffrard because he believes "Michael is an honest, good guy." During his Voice interview, Thompson retroactively used the fact that DOI never issued any public findings against Geffrardit rarely doesas a justification for bringing him to Baum long before DOI closed its probe.
While the agency responded to a Voice Freedom of Information request by claiming that no closing memo on the Geffrard case exists, two sources involved in the probe say it went on until at least July 1996. DOI officials then met with a top assistant in the United States Attorney's office to urge that a case be broughtfocusing on the bank loan and other allegations. But federal prosecutors, who had already interviewed some witnesses themselves, decided against it.
As detailed in a 1996 Voice story, DOI examined Geffrard's ties to two controversial city financial contractorsone of which, P.G. Corbin, was terminated by Hevesi after a DOI report. The other was an investment firm headed by Calvin Grigsby, who was indicted twice by federal prosecutors in Miami, but won both cases.
Geffrard remained at Baum, using its offices, fax, phones, and secretaries roughly three days a week, until approximately 1997, according to a source at the company. That's when he formed Liati.
Thompson says he got to know Geffrard in 1993, when Geffrard was director of public finance in the Dinkins administration. Thompson's first sales effort after joining Baum was to get the firm, which had just opened its New York office, designated as a co-manager of city bonds. That was a decision that Geffrard would participate in making.
After delivering a voluminous proposal to Geffrard by pushcart, Thompson and Bosch, who were Baum's only two public finance reps in New York, succeeded. When Geffrard moved on in 1994 to his key post in Hevesi's office, making underwriter decisions jointly with the Giuliani administration, Baum was again named a bond co-manager.
Thompson's colleagues on the five-member Liati board include David Dinkins and former deputy mayor Barry Sullivan. Located in a largely empty office at 17 State Street, Liati has been described as "a water boutique" by Geffrard, who claimed at a February conference that they were doing water supply privatization and financing deals, mostly in New Jersey.
Despite being on Liati's board for two and a half years and a current employee, Thompson drew a blank on what the company is doing, aside from a reference to a contract with the New Jersey Sports Exposition Authority. Geffrard ducked Voice questions.
Research assistance: Brian Bernbaum, Shonna Carter, Anna Lemond, Anna Levine-Gronningsater
High-Priced Consulting for a Low-Service HMO by Wayne Barrett
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