Cottonwood to recover portion of lost investment
Cottonwood council members Tuesday took another step to recoup a $381,000 investment the city lost over two years ago.
The money was only a small fraction of the multi-million dollar investment made by the Arizona State Treasurer's Office on behalf of many entities.
Arizona cities, towns, counties and school districts regularly invest funds in the Local Government Investment Pool (LGIP), which is operated by the treasurer's office.
In 2003 a portion of that total pool was invested into the now bankrupt National Century Financial Enterprises (NCFE). Cities and towns across the state lost significant portions of their total LGIP investments because of the bankruptcy.
Most recently, a settlement agreement has been reached between an auditing firm that once represented NCFE and a coalition of the entities that lost their investments.
Cottonwood council members voted to ratify the agreement at their Tuesday night meeting. As one of the communities in the coalition, Cottonwood's vote was necessary to settle the claim.
Cottonwood's share of this agreement is about $12,000, but city officials are hoping the settlement is the first of many.
Cottonwood Finance Director Rudy Rodriguez said that claims have been filed by the law firm representing the coalition against another auditing firm that also represented NCFE, the NCFE board of directors and legal firms that have worked with NCFE.
The auditing firms were held liable because the audits of NCFE did not reflect the potential problems that were surfacing, Rodriguez said. There's also the possibility that misstatements were made and it has been alleged that fraud may have taken place within NCFE.
Rodriguez said this first settlement is a hopeful step for Cottonwood and the other cities and towns that were impacted.
"They're hoping that this settlement will encourage others to come forward and settle any claims," he said.
The city's finance director said Cottonwood was lucky compared to other cities that had even bigger losses.
"We were very fortunate," Rodriguez said. "The $381,000 loss that we took was all in savings and required reserves that we had. It wasn't current operating revenues."
Cottonwood City Manager Brian Mickelsen said the city still invests in the LGIP.
"It has always been, and has been since this one company, a safe investment area," Mickelsen said.
At the council's Tuesday night meeting Mickelsen gave council members an update on the litigation. The council was unanimous in its approval of the settlement agreement.