State of affairs
In 2012, Patrick Strollo, an investment analyst for Federated Investors of Pittsburgh, sought a meeting with Oyster Bay officials because he was concerned about the town’s financial health.
“What was the purpose of the meeting?” Assistant U.S. Attorney Raymond Tierney asked.
“To talk to town management about their plan for remedying their finances,” Strollo replied.
A page of Strollo’s notes for the meeting was projected onto the courtroom’s largest screen. He was testifying in the federal corruption trial of former Oyster Bay Supervisor John Venditto, former Nassau County Executive Edward Mangano and Mangano’s wife, Linda.
Among the questions Strollo said he had for town officials was: “Are you planning on asking the state for assistance or oversight . . .?
“Was the state involved?”
And, “What expenses are you planning to cut?”
Strollo’s questions were reminiscent of those asked over almost two decades by Nassau County’s financial control board, the Nassau Interim Finance Authority. Nassau officials through three county administrations were unwilling or unable to make changes significant enough to rid the county of such oversight.
Strollo was asked about town officials’ reaction to what he had to say during the 2012 meeting.
“Top management did not share the urgency . . . about their financial position,” he said.
As a result, Strollo said, his firm did not buy any town offerings in 2013.
However, they bought town offerings a few years later, when investors could earn more in profits “because of the significantly weaker position of the town,” Strollo testified.
At one point, an email was introduced into evidence showing the rate of return on one such town offering.
“Awesome . . . ” Strollo responded.
“We will be interested,” his email reply went on. “Thanks.”
Strollo said he was on a conference call with town and other officials in 2016 when he first heard an Oyster Bay attorney talk about a “rogue employee” who had worked to have the town guarantee third-party loans to Harendra Singh, a former town concessionaire.
“I remember hearing that and being pretty shocked,” Strollo testified.
“I got up and momentarily left the call to get a colleague,” he said. “I told him he had to drop what he was doing and listen in on the call.”
That’s what he and his colleague did.
At that time, the firm had been considering buying more town offerings.
“I determined we were no longer interested . . . ” Strollo testified.
“We thought it was likely that something illegal had occurred,” he said.
Picking up the tab
Ultimately, the town’s bond rating dropped to junk status.
That meant that when Oyster Bay went to the bond market to borrow money, the municipality’s offerings were given both an insured rating and an uninsured rating, Strollo said.
The insured rating meant that county’s weakened position wouldn’t cost investors because the bonds would be paid by an insurer.
But there were costs to Oyster Bay — in how much it paid for insurance to get bonds to market, and on the additional interest attached to such bonds.
Who paid for the additional interest? Tierney asked Strollo.
“The taxpayers of Oyster Bay,” he answered.
“Who paid for insurance?” Tierney asked.
“The taxpayers of Oyster Bay,” he responded.
Rich town, poor town
Strollo delved deep into Oyster Bay’s finances for his 2012 report.
Among his findings: The town’s debt levels had increased rapidly. The town’s cash flow level had dropped, significantly, between 2006 and 2010.
The town’s “rainy day” fund, meanwhile, had shrunk from $16.1 million in 2006 to $4.4 million in 2010. By 2008, Strollo testified, the town had stopped “creating a reserve fund.”
In short, town finances were weak, and getting weaker.
And that was before the financial community even knew about town-backed loans for Singh, Strollo testified. Down the line, that knowledge would put even more pressure on town finances as Wall Street bond rating agencies pushed town bond ratings to below investment grade.
Still, there was a silver lining — for the investment community at least.
Oyster Bay has an unusually strong tax base, Strollo testified.
The bottom line: “The town has a lot of capability to generate taxes and pay back our investors,” he said.
Number (again) please
Donna Neiland, the Nassau County employee who was tasked with updating the county’s telephone system, and who testified on Tuesday, redialed into the trial Wednesday. She returned to the stand to talk about a second phone in Edward Mangano’s office.
A photo of the second phone, located on Mangano’s desk, had been introduced into evidence Tuesday by Mangano’s attorney, Kevin Keating.
During her Tuesday testimony, Neiland talked about a photo she took of another, smaller phone in Mangano’s office.
Lo and behold, after Neiland was excused she discovered that she had taken photos of both phones in Mangano’s office — although it was never made clear in court whether she did so on her own initiative or at the request of the prosecution.
Either way, Neiland’s additional photos showed Mangano’s desk phone included all the same numbers as the one Neiland had described on Tuesday.
But since the second phone was larger, there were additional speed dial slots as well, mostly for Mangano’s deputy county executives.
One of them was Ed Ward, who also had served with Mangano as a Nassau County legislator.
Ward is the only former Mangano appointee to show his support for Mangano by attending the trial in person.
Let’s get fis-i-cal
Most of Wednesday’s testimony — for a second day in a row — had to do with Oyster Bay finances, bond markets, financial statements and the like as prosecutors worked to make their case against John Venditto, the town’s former supervisor, who, in addition to corruption-related allegations has been charged with securities fraud.
Between 2010 and 2016, according to prosecutors, the town issued public offerings of more than $1 billion in securities without disclosing that the town indirectly had backed loans to Singh.
The testimony from six witnesses over two days — which included securities analysts, loan brokers, a Wall Street bond rating employee and others — seemed to become less than riveting for jurors and the dwindling number of spectators in the courtroom, despite energetic cross-examinations from Venditto’s attorney, Marc Agnifilo.
On Wednesday, Assistant U.S. Attorney Lara Treinis Gatz, while questioning the day’s final financial expert about the supervisor’s management responsibilities in the town, mistakenly referred to Venditto as Oyster Bay’s “chief physical officer.”
“Fiscal,” James Lyman, an asset manager for a municipal bond research firm, replied dryly from the witness stand, without skipping a beat.
“Yes,” Treinis Gatz replied, as a few spectators chuckled, “fiscal, not physical.”
“The town supervisor, deputy supervisor/deputy supervisor and other town officials are witnesses in the criminal action against concessionaire.”
So read a portion of an offering statement entered into evidence as part of the government’s securities fraud case against Venditto.
A section of one agreement, which included the reference to Singh, was projected on the courtroom screen as Treinis Gatz queried Lyman — just as prosecutors had queried financial experts before him — about disclosures his company expected town officials to make as part of the bond-offering process.
Asked about that particular paragraph — which included a double reference to supervisor — Lyman testified, “We got comfort that this wasn’t systematic across the entire town.”
“It gave you comfort?” Treinis Gatz asked.
“Yes,” Lyman replied, “it basically gave us comfort that the problem wasn’t systematic and was being take care of.”
Singh, as it turns out, secretly pleaded guilty in October 2016, to charges of bribing former Deputy Town Attorney Frederick Mei and other officials. The former town concessionaire also was the prosecution’s first witness in the trial.
Mei also testified for prosecutors, and so did Leonard Genova, Venditto’s former deputy town supervisor.
Prosecutors could present their final witnesses as early as Thursday.
Then will come the defense.
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