The 2001 vote over a bond underwriter surfaces in a battle between state Sen. Stephen D. Alves and a Republican critic.

01:00 AM EST on Sunday, February 29, 2004

BY ZACHARY R. MIDER
Journal Staff Writer

In October 2001, the West Warwick Town Council picked a company to sell $21 million in bonds. Three weeks later, with no public discussion, it reneged, and nobody involved is saying why.

The council had originally chosen Quick & Reilly to underwrite the majority of the bond sale. But at the very next meeting, the council switched and directed the business to UBS Paine Webber, eventually netting the company more than $50,000 in fees.

A month later, West Warwick Sen. Stephen D. Alves, a member of the committee that spent the bond money, started working for UBS as a vice president for investments, a job he holds today.

The council never discussed the matter in public, but last month Geoffrey E. Rousselle, council president at the time of the switch, said that he had gotten advice from Alves, a professional investment broker and a political ally.

"He [Alves] was on the School Building Committee, and obviously Steve has some expertise in the area," Rousselle said in an interview.

But two weeks after that interview, Rousselle retracted his statement, saying he could not recall "100-percent factually" whether he discussed the matter with Alves.

To deepen the mystery, the town's finance director, Malcolm A. Moore, has refused to say why he changed his recommendation to UBS, paving the way for the council's reversal.

Moore's recommendation to Town Manager Wolfgang Bauer was passed along to the council without Bauer's explicit approval.

Asked why he didn't sign Moore's recommendation, Bauer said recently, "I don't remember -- probably because I didn't agree there ought to be a change, after we went through the [formal approval] process."

Alan G. Palazzo, a local Republican who is a persistent critic of Alves, has suggested that Alves used his influence in Town Hall to steer the business to his prospective employer.

The selection of a bond underwriter was a focus of Palazzo's hourlong appearance on a Jan. 9 Arlene Violet Show on WHJJ-AM. Palazzo is a political nemesis of Alves and has been the target of an unrelated 2001 Superior Court defamation suit brought by the senator.

Alves declined to comment for this story, but UBS Financial Services, as his employer is now known, issued a statement this month dismissing Palazzo's accusations.

"The firm did not grant any incentive or benefit to Mr. Alves in connection with this transaction," the company said in a statement.

A UBS spokeswoman, Susan Austin, said in a subsequent interview that Alves does not recall speaking with Rousselle about the underwriting decision, and he never discussed it with anyone at UBS.

In interviews, none of the council members could give a reason why UBS replaced the company they had chosen three weeks earlier. They said Alves did not influence their decision.

BY THE TIME the council selected UBS as underwriter in 2001, the financial company was no stranger to West Warwick.

It had been on Alves' suggestion that the local Pension Board, which Alves chaired, hired a UBS entity called PRIME Asset Consulting Group as the board's consultant. PRIME continued to work for Alves' board even as its senior vice president, Michael Goss, tried to recruit Alves in the fall of 2001, according to Alves' sworn statements in a deposition.

The statements came in a three-part deposition resulting from Alves' lawsuit against Alan Palazzo and his brother, William. Part of the suit was dismissed and is on appeal, and Alves dropped the rest of the suit last month. Transcripts were provided to The Journal by Alan Palazzo.

After Alves took the job as a UBS vice president, the state Ethics Commission said he could continue to serve on the Pension Board, as long as he recused himself from votes pertaining to his employer.

Alves left the Pension Board in late 2002, saying his expanded responsibilities as the new Senate Finance Committee chairman were taking up too much of his time.

Alves has maintained close links with the Town Council. He got John J. Flynn a job advising his Senate committee after Flynn won a council seat in 2002.

Rousselle, who as council president in 2001 supported the hiring of UBS, is a friend and political ally. Weeks before the bond decision, Alves held a fundraiser for Rousselle at his home, raising $5,115. At about the same time, Alves also donated $250 to Rousselle's campaign.

Councilwoman Jeanne-Marie DiMasi, council vice president at the time of the UBS selection, is now the council president. She is a close friend and distant relative of Alves by marriage, and the families sometimes vacation together.

The council appointed Alves to the School Building Committee in 2000. His friend DiMasi was elected chairwoman. The panel was charged with overseeing the construction of a new elementary school.

Alves' official role: parent representative.

IN 2001, the town needed money to build the new school. It sought applications from companies to underwrite the $10.5 million in construction bonds, another $1.3 million to pay for the land, and $9.2 million to refinance some old debt at a better interest rate.

Companies interested in getting the business were asked to demonstrate their qualifications, such as their share of state and regional bond markets. The terms would be discussed later.

There were five applicants, and the town's financial adviser, William J. Fazioli, narrowed the list to three companies: Quick & Reilly, UBS, and Roosevelt & Cross. Fazioli told Moore, town finance director, that any of the three could do the work.

Moore passed the names of the three finalists to Town Manager Bauer in a memo, without stating his preference. Bauer passed the names on to the council.

Moore was at the council meeting on Oct. 16, 2001, when the issue came up for a vote. He recommended hiring Quick & Reilly as primary underwriter -- handling the bulk of the bonds -- and Roosevelt & Cross as secondary underwriter.

Moore gave no reasons for his selections during the meeting, but he said in a recent interview that he had no strong preferences among the three finalists, because they all seemed well qualified.

He said he picked Quick & Reilly because the town did most of its banking through Quick & Reilly's parent company, FleetBoston Financial Corp., and he said he picked Roosevelt & Cross to give business to a company based in Rhode Island.

With no discussion, the Town Council took Moore's recommendations and hired the two companies.

But two weeks later, on Nov. 1, 2001, Moore wrote another memo to Bauer in which, without explanation, he reversed his original decision and recommended UBS.

Asked recently about the switch, Moore would not say why he contradicted his earlier recommendation, although he emphasized that UBS was just as qualified as the other two finalists.

Bauer, the town manager, said he was never consulted about the switch.

"I'm assuming," Bauer said, "that someone provided Malcolm with some other information."

Bauer declined to speculate about who that person was, and Moore would not say whether anyone did. Austin, the UBS spokeswoman, said Alves does not recall speaking to Moore about it.

Quick & Reilly was never told about the reasons for the council's reversal, said Daniel A. Fisher, the employee who handled the bid. "It didn't seem unusual that they [UBS] would win the business," said Fisher, who now works for himself. "They are a highly qualified firm."

The council's choice of UBS directed between $58,567 and $66,934 in fees to UBS, according to figures provided by the town. The exact amount of fees depends on how the $83,667 in overall fees was divided between UBS and Roosevelt & Cross, but town officials estimate that UBS, as primary underwriter, wound up with between 70 and 80 percent.

Only three people are alive who were members of the five-member council that hired UBS as underwriter.

Of those three, both Rousselle and former Councilman Thomas W. Podgurski said they believed the switch had something to do with the different fees and interest rates offered by the different applicants.

The formal proposals submitted by the companies involved no discussion of fees or rates, and none of the council's public discussions mentioned them.

Neither councilman could give any more detail.

In his earlier interview, Rousselle said he had discussed the choice of underwriters with Alves, but could not recall the specific reasons Alves cited for picking one firm or another, or even if he had recommended UBS. In the later interview, Rousselle said he could not be sure whether he ever discussed the matter with Alves.

The other council member, DiMasi, said she cannot remember the reasons she voted against Quick & Reilly and for UBS. She does not remember discussing the matter with Alves, she said.

Zachary Mider can be reached at (401) 277-8068 or zmider [at] projo.com