Excerpted from Blooomberg: Citigroup Keeps Hawaii Bond Deals After State Investment Freeze May 6, 2010
Hawai'i has continued to use Citigroup Inc. to help underwrite $2.7 billion in debt even after one of the bank's brokers sold the state $1 billion in auction-rate securities that have lost a quarter of their market value and cannot be redeemed easily….
Auction-rate securities, backed by pools of federally guaranteed student loans, were sold to the state as low-risk substitutes for U.S. Treasury bills by Citigroup broker Pete Thompson, 60, in Honolulu.
Hawai'i last year rejected as "sorely lacking" an offer by Citigroup to buy back at an unspecified discount the auction-rate securities sold by Thompson….
Hawai'i's auction-rate purchases began after Thompson, a former community activist who became a broker in 1984, successfully lobbied legislators in 1997 for a change in state law to permit the transactions. The state could "earn at least several million dollars more without raising taxes" or "slashing any existing programs," Thompson said, according to a transcript of his testimony.
Thompson was ranked 51st on the trade publication Registered Rep's list of the top 100 brokers in the U.S. in 2008, with assets under management of $1.6 billion. As a student at the University of Hawai'i in the early 1970s, Thompson was a Vietnam War protester and ethnic-studies instructor, said John Witeck, a fellow activist who now works in human resources at the school in Honolulu.
(Here is what came of their protests: Cambodia's Killing Fields. But I digress....)
"Pete was one of the spark plugs, very bright, a charismatic speaker," Witeck said in a March 12 telephone interview. "He was always good with numbers. He's very meticulous, always very organized."
A year after Hawaii legislators passed the 1997 law authorizing the state to invest in auction-rate securities, Thompson lobbied the city and county of Honolulu, which operate as one, to adopt a similar resolution.
The city has $3 million of its $700 million in treasury funds in auction-rate debt bought from Thompson, according to Bill Brennan, a spokesman for Mayor Mufi Hannemann. The city filed a complaint against Thompson with the state’s Department of Commerce and Consumer Affairs on Dec. 31, 2008. The complaint, which hasn’t been made public, is pending, he said....
Thompson didn't know the market was failing when he sold the state the bonds, he said in a March 24 interview as he handed out samples of his wife's vegetarian food at a farmers market near downtown Honolulu.
The broker is now employed by Morgan Stanley Smith Barney, a joint venture formed last year through the merger of Morgan Stanley's and Citigroup's brokerage businesses.
“I’m sure you’ve gone through all the legal filings and seen the e-mails that were flying around from higher-ups,” Thompson said. “The guys like me -- we didn’t know any of it.”