The Senate Special Select Committee's hearings into the Social Security investment portfolio continued today in Belmopan. Presently as the investigation comes to a close - the 4 senators are trying to narrow it down to who was responsible for giving a green light on two false mortgages for Glenn Godfrey companies valued at $17.1 million - money that the government is now liable to pay. As has been widely reported those mortgages were for two sets of apartment complexes that were never built as the money for them was re-directed into Intelco.
Who knew, who should have known, and what should they have done? Those were the questions that took up most of the time today. The morning began with the second round of testimony from Former BIMCO Manager Ian Macmillan, government's point man on securitization. He was asked to discuss at length Social Security's Role as a conduit. As has come out in previous testimony, SSB was used as a conduit to deflect the conflict of interest between the DFC, chaired by Glenn Godfrey, which was the issuer of the securitization package featuring $17 million in mortgages from St. James, in which Godfrey was also a principal. But Social Security didn't gain anything by being used as a conduit - in fact it did not earn one cent for taking the Godfrey exposure. Macmillan testified that he urged SSB to charge a fee for being used, but Ralph Fonseca and Godfrey wouldn't have it.
Ian Macmillan, Fmr. Managing Director of BIMCO,
"SSB was always asked to be a conduit to facilitate. Initially, and again in conversation with Mrs. Garcia, SSB agreed to facilitate the initiation of the securitization program but it became increasingly, that's why you probably had a reluctance there on the part of the investment committee, probably one of the reasons and not speaking specifically to the projects themselves as to why they would have been reluctant, the 5th go round now, to continue to be a conduit, because they were asked over and over again to facilitate without any immediate financial compensation being garnered to themselves. I've heard discussions about oh they would have realized benefits from increased employment and all that goes with that. But that was down the road, immediately there was none.
I had written to them advising SSB, 'if you'll only be a conduit fine but you should get compensated,' and I've thrown out, as I said, what I thought would have been fair. Mr. Godfrey at that point, whenever that date was, vehemently, and I say it without hesitation, vehemently opposed that suggestion. My suggesting that to DFC, made representations, and the government sided with his case that 'we are here to help you so let's leave that issue for the time being.'"
Senator Godwin Hulse,
"Who in the government made that decision? Cabinet? Is that in writing? Is there any correspondence to that effect?"
Ian Macmillan,
"No, the only Minister I dealt with directly with on this, who I reported directly to, was Minister Fonseca."
Senator Godwin Hulse,
"So he would have been the one who said to the Social Security that this issue of compensation is not to be dealt with at this time?"
Ian Macmillan,
"No, he said that to me. I don't know in any other conversation what he said to Social Security Board."
Senator Godwin Hulse,
"This whole transaction with these two projects, would you say it was not the normal arms length transactions where professionals were involved in ensuring everything was in order, the way professional bankers and legal people do it? It sounds to me that we will run this through the Social Security so it didn't look bad and you are suggesting now, as a professional to Social Security, that if you are going to do it there should be some compensation to you. And Mr. Godfrey suggested, 'no no man we don't want no cut out of money,' and therefore the government concurs and say, 'we're facilitating this man unu go through, Social Security will put these up as their projects and everything is okay.' Is that what I'm hearing?"
Ian Macmillan,
"Back in 2002 yes."
Senator Godwin Hulse,
"Because in his testimony he is suggesting that a year before all this had changed and its just that you all didn't bother to change the documentation."
Ian McMillan,
"No respectfully Mr. Godfrey cannot excuse himself of his responsibility. He cannot excuse himself from the responsibility of knowledge because each time around transaction documents were presented, or drafts were presented. These two particular loans, which were over a $1 million in disbursed balances, had to, and were illuminated within the private placement memorandum."
Senator Godwin Hulse,
"But he said he didn't read that, he doesn't remember those."
Ian Macmillan,
"That's his responsibility or irresponsibility. There was no concealment, no rational or reasonable argument that anyone could put forward that you were not given the opportunity to be aware of what mortgages your, since you have a beneficial interest in St. James and as we're learning now a beneficial interest in the two mortgages themselves, I am learning that from this hearing which is another issue that I am upset over. But in terms of dealing with the issue of should Mr. Godfrey have known, it was his responsibility to have known. If he did not know then you have to ask him why he did not exercise his responsibility in knowing what was there because he signed off on it. That's not for debate."
And as was shown in later testimony, Social Security went from being far more than a conduit when it risked your money by becoming a guarantor of the bad Godfrey mortgages. Chairman Hulse used a graphic but effective analogy to show the poor judgement.
Senator Godwin Hulse,
"I need to use this analogy: there is AIDS out there. Everybody knows it. You have deviated from your traditional partner, or people you normally live with, whoever that person is, and you know there is due diligence, you got to wear a condom and you don't. You catch AIDS. Whose responsibility was it?"
Ian Macmillan,
"The one who didn't wear the condom."
Senator Godwin Hulse,
"And would I be correct to say that any institution dealing with any mortgage, one you got involved be it DFC, SSB, St. James, whomever had a responsibility once they got involved to see to it that that document, as a proper mortgage for which they will be capable of losing money on, that they had a responsibility to make sure that that was a proper file and a proper mortgage."
Ian Macmillan,
"That's correct."
Senator Godwin Hulse,
"And would I be correct in saying that once you guaranteed, 'cause as far as I am hearing the SSB would have been out of this if they had acted as a conduit and everything tumble down, but once they guaranteed, it is as good as signing onto that and full responsibility that comes with it and they immediately stood the risk of a loss. Is that correct? Therefore at the point of signing a guarantee to the DFC, they were then ultimately having sex without a condom. Would I be correct? The risk was there at that point."
Ian Macmillan,
"I want to answer you in a manner that doesn't make me feel uncomfortable at the same time. But the idea that you're suggesting is a valid one and I would have to agree with it."
Testimony continued today with administrative, legal and finance professionals from the DFC and Social Security who discussed at length the bad mortgages and who gave the order to guarantee them.