OCTA Suspends Investment Company

The Orange County Transportation Authority has suspended for a year the services of a New York investment firm for allegedly violating investment policies enacted to assure the agency’s financial security in the wake of the county’s bankruptcy.

“At no time was the authority ever exposed to any financial risk,” Jim Kenan, the OCTA’s director of finance and administration, said of the actions by BlackRock Financial Management company, which has invested about $200 million for the agency since 1995. “But we have very strict guidelines and, on a number of occasions, investments made on behalf of the authority were out of compliance with our investment policy.”

Ralph Schlosstein, BlackRock president, said the company agreed with the suspension. “The violations are highly technical in nature,” he said. “Nevertheless, we are disappointed that we were not sensitive to the fishbowl environment in which the OCTA is operating.”

According to Kenan, the violations--numbering seven over the past 18 months--involved transactions that exceeded limits on the amount of money that could be invested in any one place. After six such violations, Kenan said, the authority warned the company last June that any more would result in its suspension. Then in December, he said, BlackRock purchased securities at Sanwa Bank representing 8.2% of its OCTA portfolio instead of the 5% the agency had authorized.

“Some might say that we are splitting hairs,” he said, “but it’s still a violation. In the aftermath of the county’s financial crisis, the OCTA’s board of directors has adopted a zero tolerance standard.”

Schlosstein blamed his company’s most recent violation on a clerical error. “This was literally an instance where somebody typed one wrong digit into the denominator,” he said. “We have as tight a compliance record as anyone in the country--that’s why this is very frustrating.”

The company, he said, intends to continue its relationship with the authority and is “hopeful that at the end of this year period, we will be reinstated.”

In the meantime, Kenan said, the OCTA is interviewing several other investment companies, one of which will be selected to take over the portfolio--currently worth about $130 million--now managed by BlackRock.