By Michael E. Miller
By Ryan Yousefi
By Kyle Munzenrieder
By Sabrina Rodriguez
By Michael E. Miller
By Carlos Suarez De Jesus
By Luther Campbell
By Kyle Munzenrieder
It was considered the deal of the year. In order to finance the ongoing expansion of Miami International Airport, county commissioners needed to issue $200 million in bonds and were looking for an underwriting firm to oversee the transaction. The lucky winner could expect to earn hundreds of thousands of dollars in fees.
County officials turned to their list of underwriters to see which firm was next in line according to a rotation system. In 1995 the county established this system in an effort to take politics out of the selection process, which in previous years had been scandalized by allegations of influence peddling. But when financial experts reviewed the rotation schedule, they discovered that the next firm due to manage a bond deal was Douglas James Securities, a small Miami Beach-based company that had never handled such a large sale. Up to that point, the average size of Douglas James's deals had been just $13 million; the largest it had ever handled was $45 million.
The county was worried about Douglas James's limited experience and its ability to consummate the bond sale according to requirements. Among their specific concerns was the fact that Douglas James had a sales force of only four people. In addition, the county believed that the company did not have enough capital. As the senior manager of the deal, Douglas James would be required to provide a guarantee: If the firm was unable to sell the bonds to third parties, it would buy the bonds itself. Based on the company's financial records, it seemed clear such a guarantee would be impossible.
In July of last year the Manager's Finance Committee met to discuss its options. The MFC is composed of senior county staff and outside financial advisers who regularly counsel the county manager. Based on their apprehensions about Douglas James Securities, committee members voted unanimously to recommend taking control of the deal away from Douglas James and awarding it instead to the next company in the rotation -- the much larger and more established Wall Street firm of Bear Stearns.
That recommendation was forwarded to the county commission. To Craig James -- founder of Douglas James Securities -- the prospect of being pushed aside was simply unacceptable. His firm was qualified, he would argue. Executives from Bear Stearns, he charged, had planted doubts in the minds of MFC members about his ability to manage a major bond deal. "This was just Wall Street hardball," James recalled in an interview last week. "Bear Stearns knew that if they knocked us out they would get the deal, they would be next in line. I can't fault them for that. That's the way the business is."
For the 36-year-old Ohio native, the bond business is also about fighting back -- which is what he vowed to do. So before the finance committee's recommendation came to the full county commission for a vote, James turned to his friend Daryl Jones, the popular state senator from South Dade, whom President Clinton has nominated to be Secretary of the U.S. Air Force.
From April 1994 through August 1996 the Democratic senator was an employee of Douglas James Securities. In fact, Jones was the person who had persuaded Craig James to move his firm from Tampa to Miami. And it was Jones's lobbying of county commissioners in 1995 that landed Douglas James a coveted spot on Dade's rotating list of bond underwriters. "I worked hard on that," Jones says with pride, "and superior skills and techniques prevailed." The next year, 1996, Jones left the firm in order to devote more time to his duties as a state senator.
But when Craig James found himself in need of assistance and called him back to active duty last summer, Jones didn't hesitate. "He just needed a little more help," Jones recalls. "And certainly I'm an asset when it comes to landing deals."
Today James explains the situation this way: "When all this shit started happening, with everybody saying, 'These guys aren't qualified, they can't do it,' we put together our best team and said this was not fair."
Daryl Jones describes in a single word the role he played. "Lobbying," he says flatly. "They don't just give you these deals. You have to talk to everybody -- to staff, to the Manager's Finance Committee, to commissioners."
He adds that he was not involved in other activities normally associated with a municipal bond deal -- drafting documents, computing prices, lining up potential buyers. His role was simply to lobby. "Securing the deal," he repeats, "is the toughest thing to do." James continues: "When we had the opportunity to present our facts and all these objective people [county commissioners] looked at it, they said, 'This is their turn. They're covered. Give them their chance.' That's what happened."
This past July 22 county commissioners -- ignoring the advice of Dade's own experts -- voted unanimously to select Douglas James Securities to oversee what would be one of the biggest county bond deals of 1997. Several commissioners expressed the sentiment that smaller firms needed to be given opportunities to perform bigger jobs, otherwise those companies would never be able to grow and compete with Wall Street giants.
Race may also have been a factor. Both Craig James and Daryl Jones are black, and several of the county commission's black members seemed to be offended that the Manager's Finance Committee would recommend skipping over a black-owned firm, explicitly questioning its abilities. "There was a sense that it was time to make up for a series of perceived slights that may have occurred in the past," says one county official who asked not to be named, "and Douglas James was in the right place at the right time. But certainly Daryl helped them."
As senior manager for the transaction, Douglas James Securities would coordinate the sale of the bonds from its cramped and drab offices on Washington Avenue on South Beach, across the street from the nightclub Glam Slam. The firm itself would sell the largest share of the bonds, while other companies would be responsible for a smaller percentage. After several weeks of preparation the bond offering opened on October 1; by the end of the day all $200 million had been sold.
County officials declared the transaction an unqualified success. James and Jones were understandably smug. "I think we proved our worth on that one," Jones says today. "We were completely vindicated."
The firm's commissions for the one-day sale totalled approximately $300,000.
Jones's cut: $90,000.
"I was getting paid for the same reason that everyone else was getting paid in that deal," Jones notes. "I probably worked harder on that deal than any other." He makes no apologies for his windfall or for the perception -- held by some in the bond business -- that he may have traded on his name and political office for his own benefit. Throughout his career in public service, he points out, he and his family have had to make financial sacrifices: "I don't know a single investment banker with a net worth of less than a million dollars -- other than me."
A $90,000 payday may not elevate Jones to the rarefied heights of wealth enjoyed by other investment bankers, but it boosted his 1997 bottom line significantly. It may also cost him dearly.
New Times has learned that the Securities and Exchange Commission (SEC) has initiated a wide-ranging "review" of the $200 million airport bond offering. In a detailed three-page letter dated February 4, 1998, John Mattimore, assistant regional director of the SEC, asked Craig James to provide copies of all documents in his possession relating to the deal. The sweeping request covers everything from internal memoranda and audits to bank statements and wire transfers. "This inquiry is confidential and should not be construed as an indication by the commission or its staff that any violation of law has occurred," Mattimore's letter stated. (Contacted last week at the Miami office of the SEC, Mattimore said he could not comment.)
James, who provided New Times with a copy of the SEC letter, stresses that he considers the review routine and notes that he has received similar requests in the past when managing bond deals.
Daryl Jones says the SEC review may have been prompted, at least in part, by complaints to the federal agency from officials at Bear Stearns who, he suspects, are still angry at not being selected. "They are just out to get us a little bit," he claims, attributing their alleged actions to "sour grapes."
But William Hayden, senior managing director for Bear Stearns in New York, says he knows nothing about any SEC review and denies that his firm was "out to get" Douglas James Securities. As far as he is concerned, he says, once the county commission made its selection the issue was closed.
The timing of an SEC review, and the questions it raises, could not be worse for Jones. In the coming weeks, the Senate Armed Services Committee is scheduled to take up his nomination as Secretary of the Air Force. Senators are expected to question him closely on a range of issues, from base closings to military readiness to his own record as a fighter pilot. Jones's answers will be weighed carefully before the full Senate is given an opportunity to confirm his appointment as the top civilian administrator responsible for overseeing a $62 billion budget and the welfare of more than 600,000 men and women around the world, including active-duty personnel, reservists, and civilian employees.
Regardless of the significance of an SEC review, Jones's own description of his efforts last year on behalf of Douglas James Securities raises serious questions about the propriety of the transaction. Financial experts familiar with the bond industry's rules say that if Jones was retained solely for the purpose of lobbying, and if that fact was not properly disclosed, the firm may have violated Florida statutes and federal regulations governing bond sales.
During an hourlong interview on February 16, Jones recounted that when he was hired to lobby on behalf of Douglas James Securities, he did not consider himself to be a regular employee of the company. "I'm a consultant," Jones asserted emphatically. "I'm not an employee, I'm a consultant." He repeated the statement several times, noting that his agreement with James guaranteed him a flat fee if he was successful in persuading county commissioners to award the $200 million deal to the firm.
In the world of bond underwriters, the distinction between employee and consultant is extremely important. Under state law, as well as federal rules governing financial institutions, bond firms are required to disclose -- before any bonds are sold -- the names and fees paid to consultants, lobbyists in particular. Douglas James Securities, however, never made such a disclosure regarding Daryl Jones.
In Florida, failure to report the work of a consultant in a bond deal constitutes a third-degree felony. And under federal guidelines established by the Municipal Securities Rulemaking Board (MSRB) -- the agency created by Congress to establish procedures for the industry -- failure to disclose a consultant is a violation of Rule G-38 and can carry myriad sanctions, from a written warning to the suspension of an underwriter's license.
Christopher Taylor, executive director of the MSRB, says the disclosure requirements were instituted over the past five years in an effort to restore public confidence in the bond business. "For several years now there have been concerns about the role political influence has played in the process," Taylor explains. "Too often we were seeing across the country that business was not being awarded on the proper basis of qualifications but rather based on a firm's political influence. By establishing these rules we wanted to make sure that people were aware when consultants were being hired. We wanted to bring it into the open."
Nowhere has the public's confidence been tested more severely than in Dade County. For years politicians and municipal bonds have been inextricably linked by allegations of wrongdoing -- from the FBI investigation of Commissioner Joe Gersten's stranglehold on the local bond business in the early Nineties to the indictment earlier this year of Commissioner James Burke, his chief of staff Billy Hardemon, and California investment banker Calvin Grigsby in what federal authorities say was a brazen bonds-for-kickbacks scheme.
Well aware of local history, both Daryl Jones and Craig James say they have been extremely cautious in their business dealings. "I've tried to stay on the straight and narrow," Jones reports. "I've tried to make sure that everything I did was ethically correct." Adds James: "Everything we've done in this business vis-a-vis Daryl Jones has been over the top in terms of caution to make sure there were no perceived conflicts of interest or any allegations of impropriety." For instance, Douglas James Securities has participated in several projects with the state's Housing Finance Administration, but Jones says he has not been involved in lobbying on those issues because of the potential for a conflict of interest with his role as a legislator.
In 1995 Douglas James was hired by security giant Wackenhut to be part of a team of underwriters that would issue $42 million in bonds to finance construction of a new, privately run prison near Lake Okeechobee. A year earlier in the Senate, Jones supported a measure authorizing the 1300-bed facility. Once again, though, he claimed there was no conflict because he was not involved in lobbying the state prison officials who awarded the contract to Wackenhut.
Mindful of ethical correctness, on February 17, one day after repeatedly insisting that he had worked for Douglas James Securities as a consultant, Jones contacted New Times to say he had been mistaken. "I thought I was a consultant, but I'm not a consultant," he said. "I came to the conclusion today that I am a quote-unquote employee."
Jones explained that he did not receive a weekly paycheck from Douglas James Securities last year and so had been thinking in "legal terms" when he described himself as a consultant. "I was trying to answer your questions [yesterday] when I really wasn't sure of the answers," he explained.
Pressed to clarify the terms of his employment, Jones directed further questions to Craig James. "He is going to have to explain all of those distinctions to you," he allowed. "I just don't know every SEC rule."
In a subsequent interview, James said that if Jones initially described himself as a consultant, he was wrong. Jones, he insisted, was an employee: "He was a nonsalaried, commissioned, registered representative."
If he had hired the state senator as a lobbyist, James went on, he would have disclosed that fact as required. "Our point is that we did no lobbying," James declared. "There was nothing to lobby." Jones's own contention that he was in fact hired as a lobbyist elicited this response from James: "Well, you're talking to me and I'm telling you what happened." He and Jones, in a series of private meetings with commissioners and county staff, merely presented the facts regarding his firm's qualifications. "That's not lobbying," James insisted. "We did not lobby to get this deal. This deal belonged to us and [Bear Stearns] tried to take it away." (Further contradicting James's assertion is the fact that Jones registered with the county clerk's office as a lobbyist for the bond issue, although he did not list Douglas James Securities as his principal client.)
Definitions of lobbying aside, the core question remains: Was Daryl Jones a bona fide employee of Douglas James Securities last summer? In addition to Jones's original statements describing himself as a consultant, other evidence indicates he was not a regular employee:
*The biographical profile Jones makes available to the public on his legislative Website states that he is an attorney by profession, of counsel to the Miami law firm Adorno & Zeder. It does not mention investment banking or Douglas James Securities.
*A brochure produced by Douglas James Securities and updated within the past few months lists the firm's professional staff. Nowhere in the sixteen-page document is Daryl Jones mentioned -- even though Jones said earlier this week he is still considered an employee of the firm.
*On July 14, 1997, the county's financial adviser, Aimee Hamilton, wrote to Craig James and asked him to provide the county a "list of all municipal underwriters and institutional salespeople currently employed by your firm." Jones's name was not included in James's response.
*During his interview with New Times last week, James stated that Douglas James Securities employs four people, including himself. James then named the other three. Jones was not one of them.
The issue is further clouded by records maintained by the National Association of Securities Dealers (NASD), which along with the SEC enforces the industry's rules and regulations. A NASD spokesman says their records list Daryl Jones as a Douglas James employee, beginning in April 1994 and continuing to the present. The agency has no record of his resigning from the firm in 1996, even though Jones submitted his resignation letter in August of that year. (This situation gives rise to yet another problem. After Jones resigned from Douglas James in 1996, he donated $500 to the county mayoral campaign of Art Teele. Under Municipal Securities Rulemaking Board directives, if Jones were still a member of the firm, he would not have been permitted to donate or raise money for that campaign.)
Rulemaking Board executive director Christopher Taylor says it would be inappropriate for him to comment on the issues relating to Jones because he has not reviewed the matter. In all likelihood, he ventures, a factual determination would have to be made by the NASD and the SEC regarding Jones's employment status.
Daryl Jones first joined Douglas James Securities in April 1994 and held the title of senior vice president. According to his letter of resignation, he left the firm August 5, 1996. Jones says he departed because he needed to dedicate more time to raising money for the state Democratic Party in its bid to regain control of the Florida Senate. The Democrats failed in that attempt; had they prevailed, Jones would have become president of the Senate.
Craig James claims that Jones rejoined the firm as an employee on July 10, 1997, the day the Manager's Finance Committee convened to discuss the aviation bond issue. The sign-in sheet for that meeting, however, shows that Jones stated he was there representing his law firm, Adorno & Zeder, not Douglas James Securities.
Jones and James explain the apparent discrepancy by noting that while they had reached a verbal agreement to work together, Jones's pay was still being negotiated at the time of the committee meeting. In fact, the terms of Jones's compensation were not put in writing until two weeks after the bonds had been sold.
In an October 14, 1997, letter to Jones, Craig James wrote, "Based upon projected sales commission allocated to you for the $200 million Dade County Aviation Bond issue ..., Douglas James Securities will pay you a maximum of $100,000." Jones ended up with $90,000.
While he was present October 1 at the Douglas James Securities office as the bonds were being sold, he was not involved in their actual sale. Still, "the book," a computer printout detailing all orders placed for bonds, shows Daryl Jones's name next to a single order, which resulted in the sale of three million dollars' worth of bonds. But James explains that the senator had nothing to do with the transaction and that he merely typed in Jones's name alongside the order because the space next to it on his computer screen was blank, and he says he needed to fill it with someone's name.
As President Clinton's choice for Secretary of the Air Force, Daryl Jones will be expected to restore a sense of pride and integrity to a branch of the armed services that in recent years has been plagued by scandal and tragedy. In 1996 the terrorist bombing of an air force barracks in Saudi Arabia left nineteen servicemen dead. Also that year an air force passenger jet crashed in Bosnia, taking the lives of Commerce Secretary Ron Brown and more than two dozen others. Investigators determined that both incidents could have been avoided.
Last year was no better. First there was the humiliating spectacle of Lt. Kelly Flinn, the air force's first female B-52 pilot, being drummed out of the service with a dishonorable discharge for having an affair and then lying about it. Next came Gen. Joseph Ralston, the air force's highest-ranking officer, whose ascension to chairman of the Joint Chiefs of Staff was derailed by his own extramarital affair.
In April, Capt. Craig Button committed suicide by intentionally crashing his bomb-laden A-10 jet into a Colorado mountainside. This was followed last fall by a series of fatal plane crashes and midair collisions that necessitated an embarrassing order for all air force pilots to "stand down" for 24 hours to brush up on safety procedures.
Add the constant threat of budget cuts and controversial base closings, the losing battle to keep trained pilots from leaving the service for better-paying jobs with civilian airlines, and a threatened war with Iraq and it is easy to understand why the position of U.S. Air Force secretary is taking on an added importance. If confirmed, Jones would be the first black to hold that post, as well as the first air force secretary to have served as a fighter pilot.
Supporters say the 42-year-old Jones is the ideal man for the job. A native of Jackson, Mississippi, and a graduate of the U.S. Air Force Academy, Jones served in the air force from 1977 to 1984, his last three years as a flight instructor at Homestead Air Force Base.
He liked Florida and decided to stay; he attended law school at the University of Miami and graduated with honors in 1987. After law school he joined the Air Force Reserve, flying F-16s out of Homestead and rising to the rank of major. But he found politics alluring and in 1990 managed to win a seat in the Florida House of Representatives. Two years later he was elected to the state Senate.
The only previous hint of controversy about his nomination surfaced this past October, when the Washington Post reported that Jones, in 1991, was forced to cease flying fighters as a reservist after his commander expressed concern that he was compromising safety and was becoming a risk to himself and others.
One of his superiors at the time, Col. Thomas Dyches, wrote that Jones had "a totally defensive attitude towards constructive criticism. He has an excuse for everything." Another of Jones's fellow flyers, Maj. Alan Estis, resigned from his reserve unit last year in protest over Jones's nomination as secretary. Estis said he did not want to be in the position of having to serve under Jones.
Also last October the Washington Times reported that in 1982, while stationed at Homestead, Jones allegedly tried to pressure servicemen on the base to buy Amway products. Maj. Tom Massey, a retired air force pilot, said enlisted personnel came to him and other officers complaining that Jones, then a captain and F-4 Phantom pilot, urged them to buy Amway's line of household and personal-care products from him and his wife.
Massey said the solicitations came during duty hours. The enlisted personnel "asked us to call him off," claimed Massey, who served in Jones's squadron. "That's what we tried to do and he acted like, 'I'm going to do it anyway.'" Jones, who admitted selling Amway products in the Eighties, denied to the paper he pressured anyone to buy anything. "Absolutely untrue," he said, adding that "it's a great business."
Jones has consistently received high marks for his work in the legislature, and was considered particularly effective in securing state and federal assistance to help rebuild his district after Hurricane Andrew. There have been controversies, however. Last year, for instance, he delivered an impassioned speech on the Senate floor in opposition to a bill that would deny legal recognition to same-sex married partners. He noted that his district includes Monroe County and its sizable gay population in Key West. He spoke of the need for tolerance, understanding, and sympathy for gays and lesbians who have endured years of discrimination.
Then he voted in favor of the bill.
Jones has also been criticized by environmentalists for pushing the private development of Homestead Air Force Base and his support for a group of politically influential developers known as HABDI -- Homestead Air Base Developers, Inc. HABDI critics note one incident in particular.
On the last day of the 1996 legislative session, an amendment was quietly attached to Senate Bill 660 that allowed Dade County to have its development plans for the air base reviewed under a special expedited process. This fast-track approach would reduce the time opponents would have to speak out against the project and would theoretically allow developers to begin construction sooner.
Dade County officials, however, were unaware the amendment was being introduced, as it was being orchestrated by HABDI's lobbyists in Tallahassee. In fact, county commissioners had voted not to take part in the expedited review and had allowed an application deadline to lapse. The amendment extended the deadline and gave HABDI executives another chance to find support among commissioners for a second vote on expedited review.
Who was responsible for that amendment? According to Senate records, it was introduced by Sen. Charles Bronson, a Republican from Kissimmee. In two separate interviews last month, Bronson said he added the amendment extending the deadline at the request of Daryl Jones. He explained that it was easy to accomplish because he was the sponsor of the bill, which dealt with business opportunities for closed military bases in central Florida.
"Senator Jones had told me about how bad things were down in Homestead following Hurricane Andrew, and he said the people there needed the business development as soon as possible," Bronson recalled. "He wanted to do something that would help the people down there, and that's why I didn't mind adding it to my bill."
Rep. John Cosgrove, who also represents South Dade, says he also believes Jones was the man behind that amendment. "I'm certain he was responsible for it," Cosgrove says. "I didn't find out about it until after it passed, and I was a little concerned by it. It did create some controversy as people thought the legislature was giving a special advantage to HABDI."
Indeed, HABDI executives quickly took advantage of the measure and successfully pressured county commissioners to reverse their earlier decision not to apply for expedited review. (A rapid review became moot late last year when federal authorities ordered a new round of environmental assessments.)
Jones says he is dumbfounded by claims that he initiated the Bronson amendment. HABDI's Tallahassee lobbyist also denies Jones's involvement. If anything, Jones protests, he remembers "being offended" that Bronson would introduce an amendment affecting Jones's district without first asking him about it. He did, however, vote in favor of the bill as amended.
As his U.S. Senate confirmation hearing approaches, Jones says he does not mind having his political past or his relationship with Douglas James Securities examined. "I welcome the scrutiny," he offers, "but if you take a good look at the facts, I think you will find a really good story here." The success of Douglas James Securities and Craig James in particular is, he argues, impressive and inspiring. "It's a story about overcoming odds," Jones says. "We are breaking new ground every time we do a deal." Jones acknowledges that he may have helped Douglas James gain a certain entree, but the firm's proven ability has won it the respect it now enjoys.
Craig James is equally admiring of Daryl Jones. Even if the $200 million airport bond issue hadn't become controversial (owing to Bear Stearns's pique, in James's view), he would have found a way to include Jones in the deal. "We had a commitment with Daryl that if we were going to do senior-manager business, we wanted him to participate in it, because he was instrumental in people listening to us tell our story," James relates. "There is no question about it. His reputation, his integrity in this community, allowed us to come in and have people listen to us.