Frozen funds worry Harford Some on council say executive took too long to tell them of trouble

October 21, 1997|By Lisa Respers | Lisa Respers,SUN STAFF

As Harford County officials ponder the possible loss of up to $4.8 million in a Pittsburgh-area fraud case, some local politicians grumble that County Executive and gubernatorial candidate Eileen M. Rehrmann took too long to sound the alarm.

The money - bond sale assets the county invested through a Pittsburgh bank - is part of about $345 million frozen by federal officials in a civil action against Pennsylvania investment adviser John G. Black.

Harford will have to stand in line for that money with about 100 of Black's other clients, including dozens of Pennsylvania municipalities that may have to put the brakes on capital projects such as new schools, baseball fields and swimming pools.

"I think it's unreasonable to expect that they are going to receive 100 cents on the dollar," said former Pennsylvania Gov. Richard L. Thornburgh, trustee for the assets. "Until we sort out the entanglements, it's kind of hard to determine what creditors will receive what."

Meanwhile, Rehrmann - campaigning for the Democratic nomination on her reputation as a tough fiscal manager - is being criticized by some on the all-Republican Harford County Council for waiting more than a week to tell them that county funds were at risk.

"I think the way the information was released was very creative, and I think that had to do with spin control because of her run for governor," said Joanne S. Parrott, council president. "It will be interesting to see how the county is run while she's running for governor."

dTC Rehrmann, who would not comment directly on the fraud case because it is in litigation, said she released details as soon as county attorneys compiled all the facts and retained a Pennsylvania law firm to protect Harford's interests.

She said complaints about her handling of the matter come from council members who have their "own agendas."

"We briefed the council, we briefed the public and we will continue to do so," Rehrmann said. "I have a process that I have always used and will continue to use."

At the center of the controversy stands 53-year-old Black, a respected investment adviser who specialized in structuring bond issues and ran Devon Capital Management Inc. and its sister company, Financial Management Sciences Inc., from his hometown of Tyrone, Pa.

Black, who lives on a farm outside of Tyrone and raises beef cattle and other livestock, could not be reached for comment. Michael Nussbaum, Black's attorney, declined to comment and said his client would not comment.

In a Sept. 26 complaint filed in U.S. District Court in Pittsburgh, the Securities and Exchange Commission said Black illegally used $2million of investment proceeds to pay personal and business expenses; concealed investment losses; issued fraudulent reports; and lost more than $71million inclients' assets.

According to federal officials, clients turned over their money to investment companies and banks that Black advised. For example, during 1993 and 1994, Harford gave about $36million to Mid-States Bank in Altoona, which was in turn invested by Black through his company.

Officials say that, without the knowledge of his clients and despite contracts that forbade it, Black gained access to clients' funds and misused them.

On Sept. 26, U.S. District Judge William L. Standish issued a temporary restraining order freezing Black's assets and those of his two companies.

The case has sent shock waves throughout Pennsylvania, thrown local school districts that had invested into a tailspin and stunned Black's clients and colleagues.

"He had a tremendous reputation as an innovator, as a money manager and as a designer of creative programs," said Milt Lopus, a former partner of Black's who runs a financial advisory firm in Harrisburg, Pa. "I've never know him to do anything dishonest in the whole years I've known him."

Christopher Lochner, municipal manager for Hampton Township, about 14 miles north of Pittsburgh, said the township has had to postpone two capital projects because $2.2million of its funds have been frozen.

"We're involved in a situation where we took extraordinary precautions to avoid something like this happening," he said.

Harford County officials have said the frozen funds were not earmarked for any particular project. Even so, the $4.8million would be enough to fund all 24 proposed Parks and Recreation projects for fiscal 1997-1998 and the modernization of Bakerfield Elementary School.

No one in Harford has suggested that Rehrmann can be held responsible for the potential loss because the county's bond funds were turned over to a reputable bank. By the time the assets were frozen, Harford had withdrawn 90 percent of the money to use for capital projects, according to the county.

Still, some on the seven-member council say they - and the public - should have been briefed more quickly about the situation.

The county executive was informed of the case Sept. 30. On Oct. 3, Harford County treasurer James J. Jewell and a county attorney flew to Pittsburgh for a briefing.

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