Where did your Social Security money go? That's what the Special Select Committee has been trying to find out in give public hearings that have been played out in the last 7 months dating back to December 15th. And while the last session with Glenn Godfrey (See Glenn Godfrey Testifies at Senate) may have been the most sensational, today was the most concrete as the Select Committee got tough answers to tough questions from leading players in the controversial securitization programme. Leading the way with a battering ram was Narda Garcia who said Godfrey's testimony almost killed her.
Narda Garcia, Social Security Board C.E.O.
"I was on the road the last time Mr. Godfrey was at the Senate hearing and I basically ran off the road when I heard some of the things he stated."
Among those things he stated was that it was Social Security's fault that it securitized and guaranteed two empty lots for $17 million. Godfrey said they should have checked and today Garcia said not so.
Narda Garcia,
"He said of course in some context that of course maybe us and DFC well probably we are not high finance people; that's what I gathered. We were way above our level and all these innuendoes that were thrown. But however I think both DFC and BIMCO, at the time led by Mr. Macmillan, and ourselves at the SSB we tried our best to ensure that the structures were in place, that the documents needed were there, that the due diligence as best as we could do it was done, and well something has gone wrong and that is why we are here. I guess it's a blame game. I heard Senator Hulse say it's a 'ring a rosy issue,' whose to blame and who is who and who didn't do what. But yes I believe that there were misrepresentations as I think have been cleared by Mr. Macmillan in terms of the project. Mr. Godfrey tried to say that we were aware of that. I have spoken to my colleagues at the DFC, they were here this morning. I have spoken to Mr. Macmillan. Myself and Mr. Zetina have gone through again the files and through our memory as best as it can serve and to my recollection, and anybody at DFC, SSB, or BIMCO, we cannot come up to an answer if we knew or if there's any document; any letter telling us that this project has changed."
Ian Macmillan, Former Managing Director of BIMCO, which was in charge of government's securitization programme, backed up that claim and he disputed many of Godfrey's claims.
Ian Macmillan, Fmr. Managing Director - BIMCO
"There was absolutely, unequivocally, no knowledge at all at BIMCO with respect to any change of intent of those mortgages because up to the very last, and as the documents will attest to, these two mortgages had as their intended purpose some pre-fab component to it in different locations so on and so forth. That remained from the beginning all the way until the end. And because the transaction stipulated quite clearly, unequivocally, that if that if there is any change in intended purpose the bondholders, a representative to the trustee, needs to know about it. There is no if ands or buts about that. If that does not take place then we have a transgression. And to be fair, even when I think I queried it, there was the representative to me that yes there has been a representation that the collateral now is developed. So my response was okay fine he can move ahead."
Senator Godwin Hulse,
"That of course now turns out to be a
misrepresentation because its not so."
Ian Macmillan,
"To say the least."
That transgression, by our reading, was equivalent to fraud. And the other suspect aspect of the transaction was what Macmillan called a clear conflict of interest.
Ian Macmillan,
"Because of the nature of St. James, who were the principles behind it, there would have been a tremendous conflict of interest, in my definition of conflict of interest; I've heard other definitions being bantered about. But my definition of conflict of interest which includes objectivity in judgement there would have been a conflict of interest issue. You are looking at a very peculiar situation here where you have Mr. Godfrey as the Chairman of DFC and you have him also as the principal of St. James. So there can be absolutely no rationale argument that could be put forward within a responsibility context, which can excuse you from knowing what was within that transactional pool; absolutely none."
Senator Godwin Hulse,
[To Troy Gabb] "You were not aware that Mr. Godfrey, your Chairman, was related to these projects as shareholders or directors?"
Troy Gabb, Development Finance Corporation C.E.O.
"I answered that question earlier Mr. Chairman that I was not aware at the time of signing that Mr. Godfrey, or the Chairman, had any associations with these two projects. We saw them strictly as St. James' projects."
And to deflect that conflict, Macmillan said that Social Security had to be used as a conduit.
Senator Godwin Hulse,
"It was convenient and would have prevented any eyebrows being raised if
those mortgages from St. James also passed through Social Security so that then Social Security to DFC would be institution to institution, two credible institutions, rather than DFC as an institution to St. James because of the personnel on the board of the DFC which would created some kind of questions. Is that what I'm hearing?"
Ian Macmillan,
"Yes we didn't need to have the specter of those type of issues to have to deal with at the same time. It was much easier to say, make the argument to them that these mortgages are emanating from the SSB, one of the largest institutions in the country, and also the DFC, and end the discussion there than have to get into a discussion on 'these mortgages are emanating from and we have direct relationships with these small institutions.' You would have broadened the discussion and you would have gotten bogged down in things you don't necessarily have to do at that time."
And while Social Security acted as a conduit, it also acted as a guarantor - a perilous situation that Social Security tried to extricate itself from by getting a discharge of charge - which it never did get from the DFC Board of Directors. What it did get was this letter. - basically Chairman of DFC Glenn Godfrey signing on behalf of DFC to guarantee $17 million in loans to his related companies. This is the original of the same letter Godfrey implied was a counterfeit at last meeting and today his C.E.O. Troy Gabb today said he too has no recollection of that letter.
Senator Godwin Hulse,
"There was a continuous pursuit to get this release. The legal document itself was not signed. Are you aware of any correspondence between the General Manager of the Social Security and the then Chairman of your Board Mr. Godfrey?"
Troy Gabb,
"Only what I've heard from this hearing. I think, I don't recall the
date when the General Manager from the SSB disclosed that she had a letter signed by the then Chairman indemnifying them of any guarantees. But we have no such letter on our file."
Senator Godwin Hulse,
"Have you ever seen the original correspondence from the DFC?"
Troy Gabb,
"For what?"
Senator Godwin Hulse,
"For the same letter in question. The original of the letter you said you don't have a copy of."
Troy Gabb,
"No sir. No."
Senator Godwin Hulse,
"In the last hearing we presented it to Mr. Godfrey, your former Chairman, and he also said that he had not seen the original copy."
But Hulse now has the letter and Gabb looked at it and still showed no sign of clear recognition. But at this point the authenticity of the letter is a technical point because even if the DFC does legally have to pay, it is bankrupt and the fall back is a government guarantee - a guarantee that Godfrey famously said could float a bond on a panades shop.
Senator Godwin Hulse,
"In previous testimony from other parties, including the former Chairman of the DFC, it was suggested that in fact the emphasis was, as far as the bondholders were concerned, on repayability which was guaranteed by government, sovereign guarantee, and insurances and the collateral did not matter. In fact to paraphrase one of the statements made was that it could have been a panades shop and it would have been acceptable because in this document, this was simply a placement memorandum which was a prospectus and it was all over the place for people to buy into it. It could not be perfected in 100%"
Ian Macmillan,
"If that is what this committee understands those statements to be, then respectfully I'll have to say that was or is utter nonsense."
Senator Godwin Hulse,
[To Dr. Carla Barnett] "At the end of the day, and I know this is the second time I'm asking it but I'm trying to focus on one point, at the end of the day do you think we stand to lose some significant amounts of money?"
Dr. Carla Barnett, Financial Secretary
"That is possible yes."
Senator Godwin Hulse,
"And so those funds would of course at the end of day be borne by the taxpayers."
Dr. Carla Barnett,
"If that eventually arises yes."
As Financial Secretary Dr. Carla Barnett implied, there will be losses to taxpayers. Some of those losses are being added up right now as the DFC is in negotiations with Social Security to roll over $46.4 million in outstanding debt.
