Depositors Withdraw Money, Cities May be Affected
FORT LAUDERDALE, Fla. (AP) _ Depositors in Ohio lined up to withdraw deposits guaranteed by a failed Florida securities company, and cities across the nation that did business with the firm could be affected by its collapse, officials say.
″It’s like musical chairs,″ Thomas Tew, the court-appointed receiver for Fort Lauderdale-based ESM Government Securities Inc., said Thursday. ″When the music stops, some will be left standing.″
On Thursday, Securities and Exchange Commission officials said they would ask a federal judge to lift a freeze on the sale of ESM securities. They argued that otherwise, some clients of the failed firm could be in financial trouble.
″There are some cities that are in bad shape, that need to liquidate these securities in order to meet payroll,″ said Michael Wolensky, regional administrator for the SEC.
Of the 38 cities, counties and pension funds that loaned money to ESM in exchange for securities, about a dozen do not have collateral in their possession and could feel the pinch, The Miami Herald reported Thursday.
A federal judge ordered the company closed Monday after auditors discovered that ESM had borrowed $1.6 billion from its customers, loaned out $1.3 billion, and did not have the $300 million difference.
The SEC said the company had given incorrect and incomplete information to its customers, shifting its losses around to affiliates to avoid detection.
In Cincinnati, depositors of Home State Savings Association, worried they might lose their money because ESM loaned money to Home State, lined up to withdraw money Thursday.
″I don’t want to take my money out of here, but I’ve come to get it,″ said an 80-year-old woman who declined to identify herself as she waited at a Cincinnati branch office of the savings association.
Home State borrowed $670 million from ESM in a complicated financial deal called a repurchase agreement. The thrift turned over an amount of government securities as collateral, and its depositors’ fears arose because those securities may now be irrecoverable. But state officials say the money is safe.
About 150 depositors stood in line at two Home State branches Thursday.
City officials in Beaumont, Texas, were forced to postpone a $32 million bond sale set for next week when they were placed on a credit watch because the city had $21 million invested in ESM.
In Florida, Pompano Beach could lose $11 million, or one third of its total investments, while Tamarac has $7 million invested, or 40 percent of its total.
Also among possible creditors of ESM were the Arizona Retirement System; the Memphis, Tenn., City School Board Retirement System; the Bank of the South; Ohio State University; and the cities of Tempe, Ariz.; Birmingham, Mich.; Tulsa, Okla.; and Toledo, Ohio, the Herald said.
Many agencies were caught because they had bought securities through respected New York dealers. Some thought those companies actually held the securities, but they were acting only as clearinghouses for the transactions, according to the newspaper.