Fort Walton Beach Council agenda — 06-09-09 regular — reading text

Wfe  ya LEWIS, LONGMAN & WALKER, P.A. REPLY To: TALLAHASSEE MEMORANDUM TO: Robert T. Mearns, City Manager City of Fort Walton Beach FROM: Jim Linn, Pension Counsel DATE: May 29, 2009 RE: General Employees' Retirement Plan — Potential Legal Action Against Merrill Lynch Merrill Lynch provided investment advisory services to the City of Fort Walton Beach General Employees' Retirement Plan for a number of years, until last year. In late 2007 the Securities and Exchange Commission ( SEC) initiated an investigation and proposed regulatory action against Merrill Lynch and Mike Callaway, the Merrill Lynch vice president in charge of the firm' s Florida pension consulting group. The SEC action was based on Merrill Lynch' s and Mr. Callaway' s practices with respect to disclosure of fees and alleged conflicts of interest. We reported on the SEC investigation in October 2007, and in January 2008 we recommended that the City issue a request for proposal ( RFP) for investment consulting services for the General Employees' Retirement Plan. The RFP was issued in March 2008, and a new investment advisor the Bogdahn Group) was selected in July 2008. In January 2009, Merrill Lynch agreed to pay $ 1 million to settle the SEC charges. Merrill neither admitted nor denied the SEC allegations of improper conduct. Mr. Callaway is no longer with Merrill, and is contesting the SEC charges. Merrill provided investment advisory services to a number of city pension plans throughout Florida. One plan ( the Pensacola Firefighters' Pension Fund) has already initiated legal action against Merrill. Other pension plans are considering similar legal action. Helping Shape Florida' s Futures BIUDENTON JACKSONVILLE TALLAHASSEE WESTWEST PAL11-PAL11-II BEACHBEACH 1 001 3' a Avenue west 245 Riverside Avenue Post Office Box 10788 ( 32302) 17001700 PalmPalm BeachBeach LakesLakes Blvd.Blvd. Suite 670 Suite 150 125 South Gadsden Street, Suite 300 SuiteSuite 10001000 Bradenton, FL 34205 Jacksonville, FL 32202 Tallahassee, FL 32301 WestWest PalmPalm Beach,Beach, FLFL 3340133401 941) 708 -4040 904) 353 -64I0 850) 222 -5702 561)561) 640640 - - 08200820 Fax: ( 941) 708 -4024 Fax: ( 904) 353 -7619 Fax: ( 850) 224 -9242 Fax:Fax: ( ( 561)561) 640-640- 82028202 r` vFww. 11w- law.com 72- e: ! ' t. May 28, 2009 Page 2 I recently spoke with Greg Miller, a partner with Beggs & Lane, the law firm that is involved with two other firms) in the Pensacola case. Mr. Miller said his firm was in contact with more than 40 city pension funds, and he expected that a number of those funds would initiate legal action against Merrill. The legal actions would be brought as individual cases, not a class action, in state court in the local area where each pension fund is located. The cases are being handled by Beggs & Lane and the other law firms on a contingent fee basis, with no attorney' s fees incurred unless damages are recovered. Mr. Miller pointed out that the potential damages in each case would be different, based on the specific facts. He said his firm and the other firms involved were conducting a comprehensive analysis of potential damages for several plans, at no cost to the plans. He said that they would be willing to provide a similar analysis, at no cost or obligation to the City, for the Fort Walton Beach General Employees' Retirement Plan. Recommendation: We recommend that the City engage Beggs & Lane to conduct an analysis of potential damages incurred by the City as a result of Merrill Lynch' s actions, with the understanding that the analysis will be provided at no cost or obligation to the City. In order for Beggs & Lane to conduct this analysis, the City will need to make available all of its records concerning the services provided by Merrill, as well as all investment reports and related documents. Once the City obtains the analysis of potential damages, it will be able to assess whether legal action against Merrill is warranted. I would be pleased to answer any questions you or City Council members may have concerning these matters. 73-  U v LEWIS, LONGMAN & WALKER, P.A. A T* 1 0 4 v ET S .% T L A tl- PmLY To: TALLAHAssEE MEMORAMUNI TO: Joyce Shahan, City Manager City ofFort Walton Beach PROM: - Jim Linn, Pension Counsel DATE: January 2, 2008 RE: General Employees' Retirement Plan -- Investment Consulting Services At its November 27, 2007 meeting, the City Council determined that the current investment consulting agreement with Merrill Lynch should be revised to incorporate new fiduciary language and other changes as recommended in our letter of October 29, 2007. However, the City was recently informed that Larry Cole resigned from Merrill Lynch and joined another investment consulting firm (Burgess Chambers & Associates) effective January 1, 2008. We have previously reported on a Securities and Exchange Commission (SEC) investigation and proposed regulatory action against Mike Callaway, the Merrill Lynch vice president in charge of the firm' s Florida pension consulting group. Mr. Calloway and Merrill Lynch advised the City on October 29, 2007 that the SEC had " taken issue” with some of Merrill Lynch' s and Mr. Callaway' s practices with respect to disclosure of fees and alleged conflicts of interest. Mr. Callaway has taken a leave of absence from Merrill Lynch to. defend himself against the SEC allegations. In view of these circumstances, I recommend that the City Council authorize staff to prepare and issue a request for proposal (RFF) for investment consulting services for the General Employees' Retirement Plan. I further reconmend that Merrill Lynch be advised that an RFP is being issued. If the RFP ] results in the selection of a new investment consultant, Merrill Lynch should be notified in accordance with the agreement ( 30 days notice of termination). At your direction, we will assist with the wording of the RFP and the notice to Merrill Lynch. Please call me if you have any questions. Helping Shape Florida' s .Futuree B RADENTON JACKSONVILLE, TALLAHASSEE LESTLEST PALN'PALN' tt BEAciBEAci - -II 1001 34 Avenue Weal 245 Riverside Avenue Post office Box 10788 ( 32302) 17001700 Paln2Paln2 BeachBeach LakesLakes Blvd.Blvd. Suite 6,70 Suite 150 125 South Gadstlen Street, Suite 300 SS dtedte 10001000 Bradenton, FL 34205 Jacksonville. FL 322112 Tallahassee, FL 32301 WestWest PahnPahn Beach,Beach, FLFL 3333 401401 941) 708--4040 904) 353 -6410 850) 222 -5701 561)561) 640.640. 08200820 fnx: (941) 708 -4024 Fax: t904) 353 -7519 . Far (950) 224 -9242 Fax:Fax: ( ( 551)551) 640640 - - 32023202 vv nv.11 v- latit. com PagePage 3/3/ 1212 01/01/ 03/03/ 20082008 74-74-  CITY COUNCIL MEETING June 9, 2009 Discussion - Direction - Action Request to waive fees Synopsis: Request from developer to consider waiving water and sewer tap fees for development at Harbour Place Agenda Item Number: 8. 3