Court Documents Criticize Clearing House Involved With Failed Firm
NEWARK, N.J. (AP) _ A clearing house used by a failed government securities firm suffers from serious operational problems and should be replaced, an aide to the firm’s trustee has alleged.
Mary Melinda Bartlett, a government securities trading specialist assigned to review the books of Bevill, Bresler & Schulman Asset Management Corp., made the report on Security Pacific Clearing & Services Corp. of New York in papers filed in federal court here.
″Security Pacific is not in total control of its operations. Its record keeping is haphazard and incomplete. Its personnel have difficulty locating documents,″ Ms. Bartlett said in papers filed Wednesday.
Her assessment was attached to a request by Bevill, Bresler trustee Saul Cohen that U.S. District Judge Dickinson R. Debevoise order Security Pacific to turn over $95 million in two of the dealer’s accounts and accompanying paperwork.
A clearing agent handles the transactions between the parties in repurchase agreements. Under such agreements, one party borrows money with a promise to pay it back later with interest.
Security Pacific, a subsidiary of the Los Angeles-based bank holding company Security Pacific Corp., contends it has a $33 million lien against Bevill, Bresler.
Michael V. Caggiano, chief executive officer of SPC Securities Services Corp., a holding company for the clearing agent, Thursday termed the comments by Ms. Bartlett and Cohen ″scandalous.″
″They are not true,″ he said, adding that he will ask Debevoise to permit his attorneys to take statements from Ms. Bartlett and Cohen to prove the statements false.
Bevill, Bresler filed for protection from its creditors on April 7. The U.S. Securities and Exchange Commission has alleged that it and four affiliates misrepresented Bevill, Bresler’s financial condition and ability to meet obligations.
Cohen has said the dealer’s losses could run as high as $240 million.
Ms. Bartlett said she reached her conclusions after visiting Security Pacific’s headquarters and meeting with members of its management.
She said she was ″surprised and disappointed by the state and lack of efficiency″ of the operation, especially because the Bevill, Bresler account is not especially large or active.
Two officials told her that the company was suffering operational problems and was having trouble keeping up with the high level of documentation required, she added.
In accompanying papers, Cohen said Security Pacific’s ″grudging and slow turnover of documents″ is injurious to the Bevill, Bresler estate and the government securities market.
He said he had reached agreement with Bank of New York to act as the clearing agent if Debevoise approves.
On April 18, Debevoise ruled that the $95 million in government securities involved in repurchase agreements should be turned over to the trustee so that he can figure out who is owed what.
An order was not signed because both parties indicated they could work out an agreement. Later, Security Pacific asked Debevoise to reconsider his decision, and that request is the subject of a hearing scheduled for Friday.
The papers submitted by Ms. Bartlett and Cohen, in response to Security Pacific’s request, ask that Security Pacific be ordered to turn over the money and documentation.
Caggiano, of SPC Securities Services, said the documents filed by Ms. Bartlett and Cohen were designed to harass Security Pacific.
He added that Security Pacific has not been slow to turn over records and that Cohen has never been specific about which records he wanted.
Caggiano said the clearing house has more than 200 customers and is involved in 10,000 transactions worth several billion dollars daily.