SLARS Investigation by Hawaii Lawmakers a Flop
UPDATED 1/5/11 10:30 a.m.
A legislative investigation into a scandal-ridden $1 billion state investment essentially went nowhere.
The news emerged Tuesday at a where lawmakers immediately went into closed session. When members came out 20 minutes later, they said they hadn’t been able to investigate.
A joint Senate/House was asked during last year’s session to look into the $1 billion in student-loan-backed auction-rate securities investments — commonly referred to as “SLARS” — the state of Hawaii made with Citigroup that became illiquid during the recession.
Since then, the state’s former attorney general reached a with Citigroup, which was announced in November 2010.
“This is not a discussion of the settlement,” said committee member Sen. Sam Slom. “The committee’s hands were tied in not being able to call witnesses or have subpoena power.” The committee only held one prior meeting, where it adopted rules. But it didn’t take any public testimony.
Rep. Gene Ward, who voted against approving a four-page draft report for the Legislature, said there was “no investigation whatsoever.” Slom, Sen. Donna Mercado Kim, Senate President Shan Tsutsui and Rep. Marcus Oshiro voted in favor.
“The irony is that we had an investigative committee that didn’t do any investigating, there was nothing of substance,” Ward said. “We have not had a discussion to see what was taking place … I think we need to have a more open hearing by the people who did it, the new (attorney general). We’re moving on with no substantive base.”
In November, former Attorney General Mark Bennet the state had reached an agreement with Citigroup to get back the nearly $869 million it invested.
“The state will essentially get back what it paid for these securities, plus interest collected on them,” Bennet said in a statement. “The alternative — lengthy, expensive litigation — would have provided no certainty, and might, in the end, have been unsuccessful. Bottom line, taxpayers will not lose out on the principal value of these securities.”
The committee’s report concluded:
“Your Joint Legislative Investigating Committee recommends that the state recover its principal investments from (Citigroup) and related entities. Additionally, your committee has continuing concerns of the management and supervision of state funds and investments by the Department of Budget and Finance. Your committee recommends that the Legislature further review the department’s management and supervision of the state’s funds and investments.”
UPDATE: Here’s the full report:
Sen. Donna Mercado Kim said the Legislature can still decide to investigate further, but that this committee had done what was required of it.
“We have no authority to continue,” she said. “We were not looking at the fall of SLARS, but the policy. This report is very general because we recognize we were hamstringed.”
The frozen funds were first discovered by State Auditor Marion Higa in 2009. She put out a blistering that blasted the state’s Budget and Finance Department for lack of oversight, sloppy accounting practices and illegal investments. The 122-page document charged the finance department with violating a state law that requires investments to mature within 5 years of the date of investment. The report concluded that “the department’s lack of leadership and accountability puts the state’s funds at risk.”
Former Gov. Linda Lingle responded by calling the audit an “unfounded, false and defamatory attack on the integrity of the department and its employees,” prompting Higa to challenge the governor to a lie detector test.
