Risky Business: Understanding the Business Side of Government Bonds
By Mark Flatten, Goldwater Institute
Three law firms dominate the legal work that goes into issuing state and local government debt in Arizona, according to a review of bond documents done by the Goldwater Institute. That finding is consistent with what bond lawyers and government officials have said in interviews about the industry.
Near the end of the lengthy documents that describe government bond offerings to investors is a section called “relationships among the parties.” This is where potential conflicts of interest among the law firms and bond houses involved in the deal are disclosed. The number of names that appear is small but the relationships are extensive.
The Goldwater Institute analyzed the official statements in 75 recent bond sales with a total value of almost $6.8 billion, issued by a variety of state and local governments, to determine who profits from putting the deals together. All but one of those issues involved at least one of the three law firms: Greenberg Traurig, Gust Rosenfeld or Squire Sanders. Two-thirds of the transactions involved more than one of the three firms in different roles.
Two other firms were involved in far fewer transactions, but did work for agencies such as the City of Tucson and state universities that issue large amounts of debt. Those firms are Ballard Spahr and Kutak Rock.
There is nothing illegal or unethical about the close relationships among the law firms, the bond houses they work for and the governments that issue the debt, as long as those relationships are disclosed and conflict-of-interest waivers are obtained.
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