Thursday, July 10, 2008

Shhh, it's a secret (part VI)

Erin Roberts at the Milwaukee Journal Sentinel has another story on the five school districts (including Waukesha) playing around with CDOs. The districts have hired a law firm to investigate whether the investments were not what they were told.

Robert Kantas said he did not know if his investigation of the deals would lead to a lawsuit or other legal action. He said his firm, which specializes in investment fraud, was hired only to analyze the districts' investment and report on their legal options.

In 2006, the five districts - Kenosha Unified, Kimberly Area, Waukesha, West Allis-West Milwaukee and Whitefish Bay - purchased complex financial vehicles called collateralized debt obligations through district-run trusts. The value of the CDOs has plummeted over the last year, triggering calls for the districts to contribute millions more dollars in collateral to avoid a drop in income from quarterly dividends.

Kantas declined to name which of the districts had hired his firm.

But officials with the Waukesha and Kimberly districts said they had hired the law firm, Houston-based Shepherd, Smith, Edwards & Kantas, although they did not know how many of the other districts also are involved.

Waukesha School Board member Joseph Como declined to say how the district was paying the law firm. But Gary Kvasnica, director of business services for the Kimberly district, said his district is paying the law firm a fee of "a few thousand dollars" for its investigation of the investment.

I'm glad somebody at the Waukesha School Board is finally starting to question what they got themselves into. However, that does not excuse any of the school boards, especially Waukesha, from not disclosing that they have hired an attorney and what the cost is. Taxpayers have a right to know exactly what this investment scheme is going to cost them, including the costs of hiring legal help.