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Since County Comptroller Nancy A. Naples took office 11 years ago and inherited the sole right to pick Erie County's bond underwriters, she has given 80 percent of the work -- $1.1 billion in borrowing -- to one politically connected underwriter.

And in the only case where records are available, it cost taxpayers more to go with this underwriter than with a comparable one that would have charged $500,000 less.

The underwriter, Paul Atanasio, donates generously to Republican causes, including those favored by Naples' patron, Rep. Thomas M. Reynolds of Clarence. Gov. George E. Pataki has named Atanasio to two panels, and he is a longtime friend of state Conservative Chairman Michael R. Long, a Brooklyn liquor store owner whom Atanasio hired in 1995 as a $5,000-a-month financial consultant.

Atanasio, active with governments across the state, has worked for three underwriting firms since Naples, a Republican, won her first election. Each time he landed at a new firm, Erie County's business followed -- 14 of 24 bond deals and $5.25 million in fees over the years, county records show. Eight other firms split the designation of "lead underwriter" on the remaining 10 issues.

In one instance, Atanasio's mother in Queens County gave $1,000 to Naples' re-election campaign, though rules enforced by the Securities and Exchange Commission forbid underwriters or their "conduits" from donating to candidates with whom they do business but for whom they cannot vote.

In another instance, a political action committee to which Atanasio contributed sent $10,000 to Naples' unsuccessful congressional campaign last year.

"Unfortunately, this doesn't shock me," said Rachel Leon of the New York chapter of Common Cause, which in its role as a watchdog on government and the political process has found that the municipal finance industry needs constant monitoring.

"There have been a number of . . . controversies in the past couple of years of certain firms getting rewarded," she said. "It's difficult to prove a quid pro quo, but the public should know what is going on."

Atanasio's work includes the lucrative $246 million in tobacco bonds sold in 2000, when Erie County borrowed against the stream of money expected from the settlement of the lawsuit against the tobacco companies. Atanasio, at the time, worked for Bear Stearns, which became senior managing underwriter though Bear Stearns' fees cost county taxpayers $500,000 more than the amount by a rival bidder.

Why Atanasio?

There's a comfort level, Naples explained.

"We have never had a problem with any of the offerings we have done," she said. "We know we can work with his people at various firms. We have had good relationships with the desks at each firm, the desks being the people out there pricing this stuff.

"This is not an unusual way to do business," Naples said, adding that before she took office, Erie County went almost exclusively with one underwriter.

Records not provided

Asked about Atanasio's political connections, Naples said, "My reputation is to do the best thing for the county, and I've always done that. Every large firm on Wall Street has Republicans who are big, heavy donors to the Republican Party, and they have Democrats who are big heavy donors to the Democratic Party."

The Buffalo News on March 10 requested records on all of Erie County's bond issues during Naples' years in office to determine whether Atanasio's offers best served taxpayers, as an aide to Naples contends. Naples has provided none of the data sought under the Freedom of Information Law, explaining that her staff does not have time to gather and copy the records. "I can't justify stopping one of my employees from paying vendors to work on that request," she said.

In the tobacco deal, advisers hired by Erie County charted the fees to be charged by each interested underwriter and judged their strategies. They determined that two firms -- Salomon Smith Barney and Bear Stearns, which employed Atanasio at the time -- were clearly the best. Their total scores were identical, 71.

But Bear Stearns' "structuring fee" was $500,000 more than Salomon Smith Barney's.

Adviser Herman R. Charbonneau of Roosevelt & Cross, which would act as an underwriter for Erie County a few years later, concluded that Bear Stearns was worth the higher fees because it reflected "the competitive situation and the work required on its new structural variation." Several other firms were allowed to make money selling the bonds, too, but Bear Stearns took the lead.

Atanasio did not return telephone calls seeking comment. In interviews with The News over the years, he has spoken favorably of Naples' management of the county's financial affairs, and The News once published a letter to the editor he wrote praising her.

Donation from mother

Atanasio was one of just four municipal bond executives appointed to Gov.-elect Pataki's transition team in 1994. Pataki appointed him to New York City's School Construction Authority in 1995, but he resigned four years later in a nepotism scandal that erupted when a brick anchoring a tarp flew off a school roof, killing a girl. The project supervisor responsible for safety was married to Atanasio's secretary, a member of the Conservative Party's executive committee at the time.

Governments borrow money by selling bonds or notes -- IOUs -- to investors at a guaranteed rate of return. Underwriters link the government with the investors, charging a fee for each $1,000 bond sold and reaping tens or hundreds of thousands of dollars in the process.

State law lets Erie County, one of New York's largest, stray from competitive bidding on both short- and long-term loans so its comptroller can negotiate the best deal. With competitive bids, the winner is known as the envelopes are opened. But "negotiated deals," advocates say, create a better partnership between government and underwriter because their strategy to sell the bonds can change with the market.

Of the first six bonds Naples and her staff arranged, she selected Atanasio for three, when he was with Chemical Securities.

New rules limit funds

Atanasio left Chemical for Bear Stearns in 1996, and Bear Stearns was chosen for eight of 12 bond issues in the next seven years, until Atanasio arrived at UBS Financial Services. UBS got three of the six deals available since then. Naples had never picked UBS Financial Services before Atanasio's arrival there.

At one time, underwriters gave briskly to the campaign funds of government officials who could award them business, but since 1994, a rule written by the Municipal Securities Rulemaking Board and enforced by the SEC, known as G-37, has diffused the flow of money. Municipal finance professionals, the rule says, cannot give to officials they do business with, unless they can vote for them. Even then, they cannot donate more than $250.

Still, underwriters and brokers donate through party housekeeping committees, consultants and -- in Atanasio's case, for instance -- their families. Industry rulemakers have warned firms using conduits to stop the practice.

Margaret T. Atanasio of Breezy Point, an oceanside community in Queens County, gave $1,000 to the "Taxpayers for Nancy Naples" campaign committee on Oct. 30, 2001, when Naples was seeking her third term. Margaret Atanasio is the mother of Paul Atanasio, who has power of attorney over her affairs, explained her son Robert Atanasio.

Columbia University Law School professor John C. Coffee, who includes securities regulation among his main interests, said the donation from Atanasio's mother sounds like the type of situation regulators wanted to ban.

Said Naples: "I think it's really absurd to think I would favor somebody for $1,000."

By contrast, then-Erie County Comptroller Alfreda W. Slominski was once given a $750 contribution by an investment banker she did business with, before the days of G-37. "Alfreda sent the check back," said Chris Rego, one of her aides handling bond issues.

$30,750 to PACs

Atanasio has lavished money on Republican candidates, though not directly on Naples. Federal Elections Commission records dating from 1999 show him giving $30,750 to political campaigns, to political action committees run by Bear Stearns or his new employer, UBS Financial Services, and to a PAC run by House Majority Leader Tom DeLay, R-Texas: Americans for a Republican Majority. That PAC gave Naples' congressional campaign at least $10,000 in 2004, when she was running for Congress.

In the 2004 campaign cycle, the UBS and Bear Stearns PACs gave a combined $75,000 to the National Republican Congressional Committee led by Reynolds. It was Reynolds who in 1993, as an Assemblyman and county Republican chairman, discovered Naples' political potential and ran her for the comptroller's office Slominski would soon vacate.

Naples was too late to announce her candidacy in 1993 to win the endorsement of the county Conservative Party, which went with then-Common Council Member Brian M. Higgins. She won the Conservative endorsement in 1997 but did not get it in 2001, because a distance had developed between her and the party, said County Conservative Chairman Ralph C. Lorigo.

When she ran for Congress against Higgins in 2004, Reynolds wanted her carrying the Conservative endorsement and prevailed upon Long, the state Conservative chairman, to intervene. He did so.

News Researcher Andrew Bailey contributed to this report.


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