« Ind. Decisions - "Appellate court reverses DeKalb logjam decision" | Main | Ind. Courts - Union County Courthouse offices to close starting Monday for move-in »
Thursday, July 20, 2006
Ind. Gov't. - More on: Goldman Sachs's Conflicts of Interest Convulse Chicago, Indiana
The Fort Wayne Journal Gazette has an interesting editorial today, putting the best face on the Bloomberg News article quoted in this ILB entry Monday. Some quotes from the editorial:
Now that legal challenges to the Indiana Toll Road lease have been exhausted, and the lease exercised, all that remains is to reap the rewards of the Major Moves windfall, right? Not quite – a $3.8 billion lease agreement demands vigorous oversight. And to its credit, the Daniels administration appears to be watching.Bloomberg News reported this week that Goldman Sachs Group Inc. lost the chance to serve as financial adviser for Chicago’s sale of Midway Airport after city officials learned the securities firm was planning to buy a European airport company that was a potential Midway buyer.
The blatant conflict of interest drew criticism not only from Chicago’s chief financial officer but also from Charles Schalliol, Indiana budget director.
The securities firm is building a $3 billion infrastructure fund it would use to invest in infrastructure such as toll roads and airports, according to Bloomberg.
“The objective of these funds is to buy assets on the cheap,” said Dana Levenson, Chicago’s CFO. “We’re concerned, but it’s unavoidable. It would be a lot easier if there were no funds housed in investment banks, but that’s not going to be the case.”
It won’t be the case because savvy investment professionals have recognized the lucrative potential of leasing government infrastructure. They can’t be faulted for trying to maximize their profits, but state and municipal government officials need to be aware that their interests as adviser might be compromised by their own investments.
To his credit, budget director Schalliol is on top of the situation. When he found out that Goldman Sachs was preparing to invest in toll highways and other infrastructure, he called the Goldman Sachs banker who oversaw the Toll Road deal. The state of Indiana paid the securities firm $20 million last month for drawing up and executing the public-private concession agreement.
“I told Mark Florian, after the transaction was done, it would have been a significant area of conversation,” Schalliol told Bloomberg News. “I would not go so far as to say it’s unacceptable to have a fund. I would say it creates some serious questions for the engagement.” * * *
It’s encouraging to see that Schalliol was on top of Goldman Sachs’ venture and, more important, that he served the company notice.
Posted by Marcia Oddi on July 20, 2006 07:07 AM
Posted to Indiana Government