Last night we reported on what we figure to be the most alarming disclosure of the Senate's Social Security hearings thus far: that Social Security continues to use workers' money to pay Glenn Godfrey's bills. Last night, we showed you current Chairman Yasin Shoman testifying that since august of last year when Godfrey paid off his $6 million arrears, the Social Security Board again had to bail him out, this time paying $800,000 to his creditors. Well, he was wrong and we were wrong; it's much more than $800,000. In her testimony at close to 6:00 yesterday evening, General Manager and CEO Narda Garcia testified that at the end of December of 2004, Social Security paid $1.8 million, not 0.8 as her Chairman had claimed. To be sure, it's an outrage, particularly considering that our August revelation that Social Security had paid $6 million of Godfrey's debt is what blew the whole scandal open in the first place. And while the new $1.8 million revelation came at the end of the day, most of the proceedings were spent trying to figure out why Social Security had guaranteed in worthless mortgages for Godfrey affiliated companies. As it turns out, testimony revealed that Social Security got involved to mask an apparent conflict of interest involving Mr. Godfrey. Here's more.
Jules Vasquez Reporting,
This man, Glenn Godfrey and a company he was directly associated with, St. James is at the center of the Senate Social Security probe. And it's all because Social Security securitized mortgages from Godfrey's St. James and never got a promised guarantee to cover their exposure for $17 million from the DFC which Godfrey chaired. Chairman of the investment committee at the time was Ramon Cervantes. He told the committee that there were concerns.
Ramon Cervantes,
"The time when he had disapproved was because we had very scant information. We only had information that there were two lands and for the amount that was, I believe something to the tune or total of $17million between the two, we didn't see it right. We just knew that there were two properties, one in Cayo and one in San Pedro, and that's the information we had and that's why we didn't approve it."
Senator Godwin Hulse,
"Was there still any concern in your mind with respect to the inadequacy of the collateral?"
Martha Williams,
"Well that hovered over my mind. I can't say I was totally relaxed but you know it was the risk we took and in every business there is risk, there are risks."
Ramon Cervantes,
"Everybody knows you can't have two properties, just the two pieces of land, without knowing what will happen to it valued at $17 million. It would have been imprudent of us then to approve that with what we knew at that time."
Imprudent, but still 4 days later the board rejected the decision of the investment committee and proceeded with the securitization. Why?
Senator Richard "Dickie" Bradley,
"The board then proceeded, to what appears to us, to then approve the very same bundle of mortgages from St. James which were turned down."
Joe Waight,
"The board was given additional information and additional comfort and additional assurances that in fact the board's risks were either minimized or covered."
Senator Richard "Dickie" Bradley,
"And to your knowledge did it subsequently turn out that in fact the risks were minimized or covered?
Joe Waight,
"Apparently no, the board has been called upon to make payments."
But there was nothing on the two pieces of land that had been securitized, a discovery Waight called surprising.
Joe Waight,
"It would have been the flows from the projects once they were completed. But the projects, my understanding was, there were a work in progress and the income from, or the proceeds from, the securitization would have been used to complete (them) and the flows would then materialize."
Senator Godwin Hulse,
"So your clear understanding then is that there were a work in progress and that there would be flows to facilitate the payments and therefore the Social Security could participate in this transaction?"
Joe Waight,
"Yes."
Senator Godwin Hulse,
"That's your clear understanding?"
Joe Waight,
"Yes."
Senator Godwin Hulse,
"So would it surprise you or has it surprised you if you had listened to the first hearing to find out that there were no work in progress in respect to these two businesses? That was a surprise to you?"
Joe Waight,
"Very much yes."
He's probably more surprised to know that the money was never used to develop the properties. In fact, it is believed that it was invested in the now bankrupt Intelco.
Senator Richard "Dickie" Bradley,
"Then why was nothing built on the properties?"
Ramon Cervantes,
"I really don't know sir. I really don't think that is a question for me. We were, SSB was, a conduit in this process."
Senator Richard "Dickie" Bradley,
"SSB was a conduit?"
Ramon Cervantes,
"Yes that is my understanding."
Senator Richard "Dickie" Bradley,
"When the mortgages were sold under the North American Securitization Program and the funds came in, I think we were told they came by way of a special purpose vehicle. When the funds came in, why weren't the proper properties developed?"
Ramon Cervantes,
"I don't know."
The money was never used where it was supposed to have been, so when the companies stopped paying, Social Security was left in the breach because it never got a guarantee from the DFC.
Senator Godwin Hulse,
"What did you understand by the discharge?"
Ramon Cervantes,
"I understand that DFC would assume all responsibility if there was default by any of those transactions mentioned by the discharge."
Senator Godwin Hulse,
"So my understanding, if I am hearing you correct, is that the DFC would assume responsibility and that the Social Security would be relieved of those responsibilities?"
Ramon Cervantes,
"Yes sir in relation to the ones I pointed out in the undertaking."
Senator Godwin Hulse,
"And do you know if that agreement was ever concluded?"
Ramon Cervantes,
"My understanding is the only thing that was signed was the undertaking to release and discharge and legal advice has told us it is valid."
Senator Godwin Hulse,
"So you didn't need the actual discharge document?"
Ramon Cervantes,
"Well I would have preferred but during my time we never got it."
The board never got that discharge form DFC Chairman Glenn Godfrey, even thought it asked repeatedly, 12 requests were recorded in board documents.
Senator Godwin Hulse,
"And throughout the year you couldn't get that document from the DFC? And in proximity, really quite frankly, we could throw a stone from Social Security and it would land on the DFC. Was there a concern at the board level why it was becoming so difficult to get this document from the DFC?"
Martha Williams,
"It was and the board was persistent and the members insisted that we keep on writing. We just had the paper trail that we requested it. As I said when we left in 2003, I don't know if they ever got it."
Senator Godwin Hulse,
"No you didn't."
Yasin Shoman,
"There was a request for a legal discharge of charge to be made. That was not done. We do have a commitment, a letter of commitment, from DFC."
Senator Godwin Hulse,
"Why was the legal document not signed?"
Yasin Shoman,
"I have no idea. We pressed, we continued if you look through our minutes. Time and again we requested that this be done and up until the time when the term of that board expired, it was not done. However there is a legally binding letter from the DFC."
Senator Godwin Hulse,
"That you have to be chasing, that is the part that's bothering me. Its not Miss Jones' shop around the corner. These (are) two major powerful institutions dealing with millions of dollars of the people's money and so that there should be the comfort in the Social Security that here is a legal document duly signed by the DFC that you have to then be going to court or going to legal advice over a letter to see if its really quite legal. And I'm not the attorney but the back of this document has space for all sorts of people to sign: justice of the peace, chairman, general manager, witness etc. over a mere letter that says 'yeah we will discharge you basically.' It seems a little irregular and I guess that's all I can say."
Yasin Shoman,
"Mr. Chairman all I can say is answer for myself and for my actions on the board while I served on the board. As to why the DFC refused for as long as they did to sign it, I really can't say why. But I really agree with you it did seem extremely irregular."
Of course, Chairman Godfrey never signed the discharge and his St. James affiliate could not pay which points to a possible reason why SSB was used as a conduit.
Senator Godwin Hulse,
"Did it dawn on your or any of the other members of the board at the time that perhaps St. James could have gone straight to the DFC and why not?"
Martha Williams,
"You mean in doing the securitization? I think probably there would have been a conflict of interest there wouldn't it."
Senator Godwin Hulse,
"I don't know I'm asking you."
Martha Williams,
"That's my only assumption."
Senator Godwin Hulse,
"Why would there have been a conflict of interest?"
Martha Williams,
"DFC and St. James, I think they're probably the (same) ownership and Chairman at that time."
Senator Godwin Hulse,
"So would you say perhaps that's the reason why it was funneled through Social Security?"
Martha Williams,
"No, all securitization came through the Social Security but I think if it had gone (through DFC) there would have been more questioning."
Senator Godwin Hulse,
"But should that not have sent up many red flags? To say that if you were acting as a conduit but it will eventually wind up at the DFC? Its coming from the Social Security and is going to end up at the DFC but it didn't go, it took a detour, if you like, to get to the DFC and by your own admission if it had gone the direct route it would have looked like a conflict of interest. But is it not the same conflict of interest having taken this curve?"
Martha Williams,
"In hindsight you know we can look at all these things but the role of the Social Security Board was then acting as a conduit."
A conduit used to deflect a conflict of interest. So who's responsible for this mess?
Senator Rev. Moises Chan,
"You being a member of both the Investment Committee on the Board and signatory to many of those documents, can you tell us who takes responsibility for the risk that now the Social Security finds itself? From your point of view, you being party to the Board, the Committee and the in house due diligence that have been done, who you can really say should have done this job and to whom we need to now hold and say it has not been done."
Martha Williams,
"I'd like to go back to the role of the Investment Committee and the Board, whereby the Investment Committee recommends and the Board approves so I would (say) the Board is the final answer."
Testimony provided later in the day by Chairman Shoman and GM Garcia confirmed that even as Social Security continues to use workers money to pay Godfrey's bills whenever his companies default, it has absolutely no reason to do so. Garcia confirmed that Social Security made no loan to Godfrey, gave no guarantee and has no exposure which brings us to the conclusion that those who have the guarantee, namely the DFC and the GOB can't pay, so they are continuing to force Social Security to use your money to do so rather than activate the very costly insurance scheme which would possibly be perceived as a sovereign default since it has a sovereign guarantee. With that, the select committee chair Godwin Hulse challenged Garcia not to make one more payment the next time Godfrey's companies default.
In related news, 7NEWS has confirmed that the attorney for the minority shareholders, Lois Young-Barrow today filed an application in the Supreme Court which seeks to block BTL from buying over Intelco's assets and assuming monthly payments for the $20 million which Intelco supposedly owed to the Social Security Board. Young Barrow will argue that those debts ascribed to Social Security are actually Godfrey company real estate investments that went badly and to buy them over with BTL's money would saddle the company with unnecessary debt. We will add that if he does get to take over that debt, Prosser will be fulfilling a political dream for the Musa administration which needs to dispose of these debts as a political emergency. And his critics say that Prosser, would only be happy to do so because he would presumably add to that needless extra bailout money to his guaranteed rate of return meaning higher phone rates, which phone users will end up paying again, just to bail out a political friend and his costly failed startup.
