Arizona cities that lost millions in a failed investment are likely to recover a fraction of their losses, though officials are hopeful more money will be returned in the future.
A settlement filed in an Ohio federal court this week, if approved, would return $34 million of a $131 million investment to the state and several Arizona cities.
The cities’ and state’s money was in a Local Government Investment Pool, composed of local government monies that aren’t immediately needed, according to a recent Scottsdale City Council meeting agenda.
“State law requires Arizona governments to invest their temporarily idle funds” in this pool, the agenda states.
The settlement involves a lawsuit between the pool and Bank One, JP Morgan and several other banks that were tied to a health care funding company that was investigated by the Securities and Exchange Commission and which eventually filed for bankruptcy.
The company, National Century Financial Enterprises, operated by loaning money to doctors’ offices and hospitals while they awaited insurance reimbursements. National Century received the reimbursements from the insurance companies and was supposed to take its share and pass the remainder to the health care companies.
The Securities and Exchange Commission alleged in a December report that the company had “hidden massive cash and collateral shortfalls from investors and auditors.”
National Century filed for bankruptcy on Nov. 11, 2002, not long after the Arizona investment pool plugged $131 million into the company.
Since then, cities in the investment pool have been trying to recoup their losses.
Chandler was hit the hardest, with a loss of about $14 million, according to the Arizona Attorney General’s Office.
“We always hoped that we didn’t lose it,” said Pat Walker, Chandler management services director. “We hope to regain it back.”
Gilbert Town Manager George Pettit wasn’t very hopeful the town’s $4.5 million loss would be fully recovered.
“That would be miraculous,” he said.
Scottsdale, which lost about $7.7 million, approved the terms of the settlement in a City Council meeting on Jan. 10. It will receive an estimated $1.7 million if the settlement is approved by the federal courts.
Attorneys will take 15 percent of the $34 million, which means there will be about $29 million left for the state investment pool.
All of the cities are in litigation with other financial companies tied to National Century in efforts to recover more of their losses.