The Tyrone Area School District will receive a payment of $37,896 as part of $2.3 million payment to several school districts in what amounts to the final chapter of the John Gardner Black securities scheme case.
Tyrone Area was one of 50 districts affected by the scam dating back to 1997. Black was a financial consultant that worked for the district. Tyrone Area had funds available to embark on a school building project during the mid-1990s and Black handled the money for investment purposes.
In a September 1997 U.S District Court filing, the Securities and Exchange Commission alleged a fraudulent scheme perpetrated by Black through Devon, an investment advisory firm, and its affiliate FMS. Black owned both firms. The complaint alleged the scheme caused the loss of millions of dollars of municipal bond proceeds invested by districts in the central and western part of the state.
In a move last week, Blair County Judge Hiram Carpenter closed the latest chapter in the case. His decision creates a settlement between the districts a New York state investment banker, Lehman Brothers, Inc. The decision was needed as part of approving a settlement in another (parallel) case in U.S. District Court in Johnstown.
This morning, Tyrone Area School District Superintendent Dr. William N. Miller discussed the latest decision with The Daily Herald.
In 1997, the district had its assets frozen as a result of the securities scam. $27 million dollars had been invested in various funds. Dr. Miller said litigation was started immediately.
“Our position at that time was, and it has proven to be a valid position, that this was a fraud case,” said Miller. “This was the biggest municipal fraud case in Pennsylvania.
“We were in a situation where we only had $400,000 that had been invested in another bank,” said Miller. “We were in a position where we had to respond immediately.”
Miller described “how close” the situation was for the district. He recalled administrators met with staff and community members and staff were informed that the district could meet its payroll.
“They (securities officials) froze the money but we actually had about $13 million that was returned to us,” said Miller.
Former Attorney General Richard Thornburgh was appointed as a trustee to handle the case for the Securities and Exchange Commission.
“He froze our assets and put us in a more difficult situation because we didn’t have that ($13 million) for a period of time,” said Miller. “We did eventually get those funds released. So, what remained was a little over $12 million that was not available.”
Miller explained the district was in the midst of a elementary school construction project and the rehabilitation project at the high school.
“We did a study to make an assessment on whether we should close the project or continue it,” said Miller. “The assessment came back, which we felt that it would, that you are going to lose more money if you shut it down and try to reopen it ‘x’ number of years later.
“We went ahead with the project (and) because we were in such a strong financial position, we were able to on our own. The state refused to support us in any manner with low interest loans or any kind of support like that. They did do some minor things, but as far as any political support we didn’t have it.”
Miller said the district worked with a Pittsburgh attorney (Mike Betts) to start the recovery process. Miller contended the district was not losing money on the investment. He said the district had reports to confirm that and it helped support the district in their effort to regain the funds.
The district had its own litigation in addition to class action suits filed on behalf of several districts.
As part of the recovery process, Tyrone initially received about $8.5 million through Mid-State Bank (now M & T Bank). That settlement was negotiated through Judge Carpenter. Miller said Carpenter helped negotiate a settlement that led to $50 million dollars for the districts involved in that particular suit.
The district also negotiated with bond counsel and received another $4 million of about $8 million available in that settlement.
“Just from negotiating with those two, we recovered 100 percent of the principle,” said Miller. “From that point in time, we collected additional money from another two or three groups.
“The final contributor is the one we have before us, Lehman Brothers,” said Miller.
He said in addition to recovering full principal, the district has now recovered almost all of the costs associated with the process including attorney’s fees.
A Pittsburgh attorney, Richard A. Finberg, handled class action suits in the case.
He said, “This was the final piece of litigation and the districts have been made substantially whole. We think it’s a very good result.”
Both Miller and Finberg noted the work put in by Judge Carpenter throughout the last several years in the recovery process.
Black did not return a call to The Daily Herald as of press time this morning.
