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3 Cities May Have Lost $8 Million in Investments

October 03, 1987|TIM WATERS and GEORGE STEIN | Times Staff Writers

Three Los Angeles County cities--San Marino, Lawndale and Palmdale--could lose nearly $8 million because of speculative investments made by their treasurer, city officials said Friday.

Officials in all three cities said they will ask the county district attorney to investigate whether the investments were legal.

The treasurer, Ray Wood, could not be reached for comment. Officials said they had no knowledge that he personally profited from the investments.

Wood, who worked on a contract basis with each city, was fired by officials in Lawndale and San Marino and resigned in Palmdale this week after audits found that he had made unauthorized investments for more than a year, officials said.

People's Money

"The money is gone and how much we can recover is something else," Lawndale Councilman Dan McKenzie said. "That money belongs to the people."

All three cities are small--the largest, Palmdale, has a population of 33,100--and entrust municipal finances to a part-time treasurer.

"None of us is really into finance or anything like that," McKenzie said.

Wood was paid $850 a month in Lawndale and $1,500 a month in San Marino. A statement by officials in Palmdale, where Wood's title is finance director, did not disclose his fee there.

Wood invested the money in government bonds bought on margin, Lawndale City Atty. David Aleshire said.

Can Be Wiped Out

In a margin account, an investor puts down only a fraction of the price of a security, hoping that the market will rise. If the market falls more than the amount invested, the entire investment is wiped out unless the investor puts in additional funds.

Lawndale learned this week that it had already spent $1.9 million on its original investment and subsequent margin calls, and officials decided to cut the city's losses rather than invest another $40,000--the latest margin call--in the securities.

Lawndale officials held a press conference Friday to announce the expected loss, which is about half of the city's general fund reserves.

San Marino officials said they lost nearly $2 million, almost a third of the city's $7-million reserve.

Legal Action Threatened

In Palmdale, Mayor Tracy Bibb said in a prepared statement that the city could lose as much as $4 million and would take legal action to recover the money.

Officials in the three communities said city services would not be affected by the anticipated losses.

Lawndale City Atty. Aleshire said Wood told him that he made the investments through a broker who did not fully inform him of the nature of the transactions.

"I think (Wood) made some mistakes and then I think that he panicked," McKenzie said. "I feel sorry for the guy but still that is a pretty costly mistake."

Wood said he received no compensation from the broker for making the investments, Aleshire said.

In both Lawndale and San Marino, city policies call for investing funds in conservative accounts such as certificates of deposit and bank savings accounts. In Lawndale, Aleshire said, a speculative investment must receive council approval but "this approval was never obtained."

Times staff writers Mark Arax and Karen Roebuck contributed to this story.

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