Friday, January 9, 2009

Getting To Know Supreme Viceroy Sciortino


Ha! We are having some fun with the headline. It is in partial reference to a certain draft financial agreement (context) with the City:

8. The selection of trustee banks or any other professional support for transactions under this Agreement shall be made by the Executive Director of the ICA pursuant to Act 11 of 2004, 53 P.S. 28101 et seq.


Points 1-7 describe decisions and actions to be undertaken by the City Controller, but only after prior discussions and expressed written approval from the Executive Director of the ICA.

It all made Henry Sciortino seem to be an extraordinarily powerful figure in the sculpting of Pittsburgh's future. And point 8 in particular seemed to be a bit over the top.

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So we decided to do web-based and primary research on Henry Sciortino.

The director of the city of Pittsburgh's state-picked oversight board must pay his former employer $717,000 as a result of a Chester County jury's verdict that he moved money and contracts from that business to his own firm, and interfered with several of the employer's business contracts.

Among the arrangements which Intergovernmental Cooperation Authority Executive Director Henry Sciortino was found to have tampered with is the contract with the ICA... (P-G, Lord and Bolesovic)


Sciortino had parted ways with the firm Fairmount Capital Management, but a judge had ruled that Sciortino owed Fairmount restitution for having in some way inappropriately wound up with the City of Pittsburgh.

In a telephone interview with the Pittsburgh Comet, Sciortino said that case is being appealed.

"I have never been with the ICA as part of another firm. I was hired as an employee of the ICA," he said, beginning in March of 2004. He says his attorneys are working on it.

*-UPDATE: Didn't go so well. (P-G, Rich Lord)

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The kerfuffle may have started in City Hall Pittsburgh, but touched off earthquakes in City Hall Birmingham, Alabama.

After the initial vote, Council President Loder appeared confused and refused to declare that the vote had failed until he could receive clarification that three votes were not a majority in this situation. He said he also wanted to give councilors the opportunity to reconsider their vote. Half an hour later, Loder called for the vote again, explaining that he now understood that a majority of four was needed when only seven councilors are present. By this time, Councilor Sykes had convened with Mayor Kincaid and Councilor Hendricks and switched her "abstain" vote to a "yes" vote.

Councillor Montgomery became livid.
(Black & White City Paper)


The Comet didn't think to ask Mr. Sciortino about that incident; it didn't seem to involve him. He wound up remaining on as financial adviser to Birmingham, AL.

For a while, it was a tale of two cities.

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Now, I know what you're thinking.

Birmingham Mayor Larry Langford was arrested Monday and the 101-count indictment against him has been unsealed.

This morning, U.S. Attorney Alice Martin announced that Langford, along with friend Al LaPierre and businessman Bill Blount, face charges of conspiracy, bribery, fraud, money laundering and filing false tax returns. (NBC13.com)


This occurred in November of 2008. By all media accounts, it looks as though Mayor Langford got himself into trouble over previous bond deals he and his associates made during his tenure as a Jefferson County official -- before he was elected mayor of the City of Birmingham.

We asked Sciortino to confirm that this is true; that he had no connection to any of these Jefferson County bond deals. He confirmed this.

He also described how he left Birmingham in the wake of Mayor Bernard Kincaid's defeat.

"I think it was June or July of 2007," said Sciortino. "The mayor was not reelected. I think there was a run-off of some kind ... they don't do it quite like they do here."

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A federal grand jury is investigating how a company that advised Jefferson County, Alabama, on bond deals that threaten to cause the biggest municipal bankruptcy in U.S. history, did similar work in New Mexico after making contributions to Governor Bill Richardson’s political action committees. (Bloomberg, Brown and Selway)


And then the leap to this:

The head of a financial firm at the center of a "pay-to-play" investigation that prompted the withdrawal of President-elect Barack Obama's nominee for Commerce secretary donated tens of thousands of dollars to Gov. Ed Rendell and has a contract in Pennsylvania.

David Rubin, president of Beverly Hills-based CDR Financial Products, donated $35,000 to Rendell in 2002 and 2005, state campaign finance records show. (Trib, Brad Bumstead)


That contract turned out to be a no-bid contract.

Sciortino impressed upon the Comet his lack of involvement with Jefferson County, with CDR Financial Products, and with Mayor Langford entirely.

"I haven't met them," he said of the Jefferson County financial advisory team, and hadn't done business with them. Also, "I never had any conversation with the new mayor. I didn't submit my credential."

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Now let's go all the way back to 1993 and 1994.

Meteer testified that when he mentioned to Quinn that 0.0045 was 45 basis points, Quinn did not react. Meteer was sent back to his desk with the instruction that 0.0045 was to be used, because the mathematical result of the mark-up was to be in the millions. When the preliminary bidding for the securities was done, Meteer marked up the purchase price by 0.0045, or 45 basis points.


That is one part of the crux in the matter of Kevin G. Quinn, as described in the initial decision of the Securities and Exchange Commission. Quinn was accused of inappropriately marking-up financial service fees owed by the Commonwealth of Pennsylvania by a factor of ten -- from 4.5 basis points to 45 basis points. (Also there was the matter of an ill-understood fee split agreement with a second company that made things grow more unexpectedly expensive.)

During these events, Henry Sciortino was the point-person for such bond deals in the state treasurer's office under Treasurer Catherine Baker Knoll.

Here is the relative upshot of Judge Mahoney's ruling:

I conclude that there is no evidence that Quinn intentionally withheld any information about becoming the escrow agent from the Treasurer's Office or the Governor's Office, or that he did so recklessly or negligently. I further conclude that Quinn had no duty to disclose additional information to the Governor's Office.


Although the taxpayers got soaked, the Commonwealth as a whole just didn't do its due diligence well enough to merit a case.

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Sciortino reads in the SEC decision at certain times like a very well-intentioned and unfortunately ignored minor-league functionary. Some selections like this:

Heyison, the executive deputy treasurer, was considered a micro-manager and a tough negotiator. His style made the Treasurer's Office a difficult place to work. He was responsible for every activity in the Treasurer's Office. Heyison was in strict control of the information flow in and out of the Treasurer's Office. He reviewed all correspondences Sciortino received, except for junk mail. Most of the time, Sciortino had to clear "return calls" with Heyison before making them including routine business.

McCarthy and Heyison were the decision-makers for the office, and both Arpey and Sciortino recognized McCarthy to be their superior. McCarthy was not an employee of the Commonwealth, but they understood that he was standing in the shoes of Heyison and was to be involved in every decision.

Sciortino objected because Alex Brown was outside of Pennsylvania and other applicants had better credentials. However, Heyison and McCarthy's decision was submitted to the treasurer and approved.

When Sciortino learned that Heyison and McCarthy selected Alex Brown, he objected. Sciortino believed that the Commonwealth could effectively provide the same services.

According to Sciortino, the first three options would have resulted in no more compensation to Alex Brown than that identified in the financial advisor service purchase contract. The fourth option, open-market purchasing by negotiated bid, which Heyison and McCarthy pursued, would pay Alex Brown a mark-up.

Sciortino also believed that it was a conflict of interest for Alex Brown to act in the capacity of escrow agent while already under contract as the treasurer's financial advisor.

Quinn negotiated with the Treasurer's Office concerning the level of the mark-up on the escrow securities. Sciortino thought a fair mark-up for the escrow securities was 1/32, approximately 3 basis points or 0.0003125.

When Sciortino was told that the mark-up was 45 basis points, he became "unhappy" and rechecked the numbers with the analyst to make sure they were accurate. Once Sciortino was comfortable with the conclusions, he notified Quinn that the securities had been marked up ten times the amount previously agreed to. Quinn replied that Sciortino's calculations were inaccurate because it was 4.5 basis points.

Sciortino also reported the excessive mark-up to Heyison and McCarthy.

Sciortino also personally notified Knoll, and explained to her the difference between 45 and 4.5 basis points by providing a numeric example of the difference between 179,000 and 1.79 million. Sciortino's action of notifying Knoll agitated Heyison and he forbade Sciortino to ride in the car alone with Knoll after this incident.

Sciortino believed that he could pursue the possibility of getting a refund from Alex Brown for what he believed was an excessive mark-up. Sciortino wanted the difference between the actual mark-up and what he believed they had agreed to originally. He pursued it with Heyison, Arpey, and also McCarthy. Sciortino was told repeatedly that the Treasurer's Office, meaning Heyison, was considering the issue. Sciortino was to "get out of it, go back and do [his] job and [Heyison] would handle that aspect of the transaction."


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At other times, it sounds like Sciortino was changing his stories, and perhaps not being so vigilant as possible. Selections:

Sciortino did not believe he received the letter although it was copied to him.

In his investigative testimony, Sciortino stated that he wrote the amount on the day of the pricing, but at the hearing he stated that he wrote it sometime later. Meteer received Sciortino's approval of the figures and the purchase was locked in. If Sciortino had withheld his permission, the transaction would not have occurred and "all hell would have broken loose."

During the investigation and the hearing, Sciortino provided a variety of reasons for his presence at Alex Brown, none of which related to the mark-up. He stated that he was there as requested by McCarthy to represent the Commonwealth and oversee the bidding and structuring of the escrow securities. (Tr. 287, 393, 480.) It was standard practice for the Commonwealth to visit the offices of the companies with which it worked, as a form of due diligence. Having never been to Alex Brown's office, Sciortino thought this was a good opportunity. (Tr. 393-94.) Sciortino wanted to see the process of purchasing escrow securities. (Tr. 287.)

In his investigative testimony, Sciortino stated that he visited Alex Brown to make sure that it did the escrow securities purchase "right," because there were certain firms that the Commonwealth did not want to do business with, which the traders at Alex Brown would not have been aware of (Tr. 394.) In investigative testimony taken on November 19, 1997, Sciortino stated that he was at Alex Brown to check on what it charged the Commonwealth for the escrow securities. (Tr. 395-96.) Then, in investigative testimony taken on March 13, 1998, Sciortino stated his purpose was to determine whether or not there was sufficient escrow securities to defease the issue and to obtain a verification report. However, that report was not ready until 6:00 p.m., well after the time Sciortino left. (Tr. 396.) Also, Sciortino was unable to clearly recall other events that day. He was unsure about whether he went trout fishing, to the office, or home upon leaving Alex Brown. (Tr. 397-99.)

Sciortino did not make an effort to stop the closing, even though the mark-up issue remained unsettled. To stop the closing would have caused a significant negative impact on the Commonwealth's ability to borrow in the future. It would have also caused problems with the Commonwealth's credit rating, and decreased its credibility in the marketplace. Comparatively, the risk in causing the transaction to fail and the fact that Sciortino had reported it, caused Sciortino to not attempt to stop the closing. Sciortino assumed that the overall transaction would be successful financially.

Quinn, Sciortino, and Arpey became involved in a heated discussion. Quinn stated that Sciortino was aware of the forward supply contract. Sciortino said that he was not. Quinn stated that he had sent a memorandum to Sciortino about the forward supply contract prior to the escrow securities pricing day. When Sciortino denied seeing the memorandum, Arpey went into Sciortino's office and found it. Still Sciortino claimed to had never seen the memorandum because that was the day he was in Baltimore. The memorandum discussed the forward supply contract, not the mark-up on the escrow securities. Arpey described the memorandum's contents to Sciortino, and Sciortino concluded that the Commonwealth had been deceived.

Heyison and Sciortino did not explain to Heilman why it took them until August 22 to raise the issue or bring this mistake to Heilman's attention. They did not decide on any course of action.

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"Seven of the eight people who were sued by the SEC for various kinds of wrongdoing were fined," says Sciortino. "One of [those] went to jail."

In the matter of Kevin G. Quinn, the proceedings were dismissed.

"All I know is, I was a fact witness." Sciortino didn't care to engage or challenge our interpretation of events. "I was a fact witness in a larger matter."

Sciortino takes credit for making the initial reports that initiated these SEC investigations. Although in initial interviews he was classified as a potential target -- that's how they do it, he says -- after the initial interviews were concluded, he formally became a fact witness.

Sciortino was keen to inform the Comet In regards to the matters in the seven other SEC suits that the Commonwealth of Pennsylvania was awarded and repaid $15 million.

"That thing went through SEC investigations, the FBI was involved. They looked through everyone and every thing."

The Comet has not researched these other lawsuits as of post time. Sciortino recommends that interested parties track down a Rick Firestone of the SEC in Washington, D.C.

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After all of that grilling, Sciortino cordially asked us the occasion of our interest in his at-times tumultuous professional history.

We told him that as a city news blog, we had been covering the 2009 Budget Talks (here, here, here, here) and had become familiar with his name, and in the role of the ICA in City of Pittsburgh budget matters. It seemed that role was becoming the occasion of some controversy.

Sciortino told us that if we are referring to "that agreement that was being waved around" (we are both reasonably certain we refer to the same version of a draft financial agreement), the ICA had "no party in drafting it."

The draft, he said, was produced by the Act 47 team -- Pittsburgh's other oversight body. Scoiortino claims it was rejected by the ICA definitively on the 15th or 16th of December, soon after he saw the language about the role of the Executive Director in regards to a debt reduction fund.

"First of all, the board runs the ICA."

Sciortino also says although the Act 47 team "did a nice job trying to frame the issue, they used a narrow finance mechanism".

Sciortino suggests that much of the confusion surrounding City of Pittsburgh financial matters resolves around misapprehensions about its two financial oversight bodies. "Act 47 deals with the operation of the City", he says. The ICA deals with what he calls "finances".

For example, what we and many have been referring to as the new "Five Year Plan" to be put in place by summer is actually the "Act 47 Revised and Distressed Plan" or something in that ballpark. The real "Five Year Plan" was passed as part of Mayor Ravenstahl's 2009 budget.

Councilman Ricky Burgess, who sponsored legislation (which passed Council, was vetoed by the Mayor, and then subsequently withdrawn) that attempted to push completion of a five-year plan forward from June to March confirms that distinction and characterization.

So long as we had Sciortino on the line, we asked him about whether a shift of emphasis has occurred from paying down pension obligations to addressing the debt.

"There was an agreement the Mayor made with a Council member at one time," he said, referring to a pledge to pay 15% more than the required minimum into the City pension funds, but the ICA recommeded against that strategy. Sciortino said that instead of paying off a big chunk at once, the ICA is more interested in "management behavior that is able to be continued."

That's why they recommended paying off 5% above minimum over five years. "Continue at 5% additional until the pension fund is positive."

And in regards to the City's tactics to reduce debt and debt service, including the special debt reduction fund at the Controller's office: "How it gets done is less important than getting it done."

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Mr. Sciortino mentioned that he does not run the ICA; the board does. Let's meet them.

Barbara McNees: Chair
Grace Ann Geibel: Vice Chair
Dr. J. Matthew Simon: Secretary / Treasurer
Curtis Aiken: Member
Richard Stanizzo: Member

One seat on the board is appointed by the Governor, and the other four are appointed by the two party leaders of the two houses of the Pennsylvania State Legislature. If anyone can research who on the present board was appointed by whom, I would be grateful, because I am exhausted.

William K. Lieberman left the board in September to join the would-be slot casino team of Forest City Enterprises and Harrah's Entertainment that hopes to get the license for Station Square. House Republicans haven't decided who should fill that seat, said a spokeswoman for House Speaker John Perzel.

The Rev. James Simms resigned in January to work on behalf of Isle of Capri Casinos, the Pittsburgh Penguins' partner in a proposed slot machine casino. House Democrats haven't chosen his successor, said a spokesman for House Minority Leader H. William DeWeese. (P-G, Rich Lord)


That should get you started.

As to the relation of Executive Director Henry Sciortino to board-level politics, we have discovered only one small indicator.

Mr. Sciortino's backers included William Lieberman, a politically connected insurance broker. (P-G, Rich Lord)


As you know, William Lieberman was prominent among Mayor O'Connor's advisers hailing from the private sector. (P-G, Dan Fitzpatrick)

17 comments:

  1. That was really boring.

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  2. ... says the guy who commented at 1:48 AM.

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  3. Keep up the good work, Bram.

    I wonder whether anyone at the Post-Gazette ever considered investigating these issues.

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  4. Clearly, I only linked to our local newspapers about 27 times. But I'm not aware of anyone revisiting the material or looking at it in scope.

    Prior to everything noted, I am assured that Sciortino was a City of Pittsburgh treasurer's office official. But I don't know that there's much to know about that. He got swooped up in the ascension of Baker Knoll, is what I understand.

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  5. Still boring at 11:26 PM. Nothing changed.

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  6. Not boring at all Bram. Excellent work.

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  7. Point acknowledged: You linked to several Post-Gazette stories.

    But the Post-Gazette excels at refraining from connecting the dots. It has become a dependable tradition.

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  8. If OVERLORDS just dressed as OVERLORDS should, it would be much easier to understand.

    I'm at Disney now. Perhaps I can bring back something from the "Magical Kingdom."

    Nevermind -- it costs too much for each extra suitcase for me to bring back the get-ups.

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  9. I might have missed it, but, what was the point? Lots of good research, but I lost the thread. Are you saying that S. is a bad guy, and if so, how so? The beauty of newspaper reporting is that there's a deadline and a space limit. You have to make your point in 12 or 15 inches. Readers appreciate that.

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  10. B. - I don't so much have a "point", except to say A) he likely has more authority in Pittsburgh than most people realize and B) drama seems to follow him around. It could be that drama tends to follow people who deal in municipal bonds these days (my impression is that it's a relatively close-knit fraternity) but he seems to have garnered a considerable share, yet earned himself a cozy, even unique perch.

    Didn't realize it at the outset, B. Revity, but this was more of a magazine article. I think maybe the blogs have been aspiring too narrowly towards that which is newspapery, to the exclusion of other great media. Aside from that, I'll grant you: It's not for everyone.

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  11. Then by all means, enjoy your exclusivity!

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  12. Annointed Comet ReaderJanuary 12, 2009 at 12:51 PM

    The PG, particularly Rich Lord, only connects dots when there are proven connections. It's Journalism 101. Speculation is left to the blogs and Whispers.

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  13. You have to make your point in 12 or 15 inches..

    You could not make a point in two pages also. That's what happened here.

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  14. B. Revity said:

    "The beauty of newspaper reporting is that there's a deadline and a space limit."

    On deadline - point conceded.

    On "space limits" and limits of any kind - NEVER! The only limits should be the limits of focus and concentration.

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  15. Alright. 2.5 years later (Viceroy? How irreverent) and resolved. I'm going to circle back around to this.

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  16. Where is my draft financial agreement?

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