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HomeMy WebLinkAbout2002-11-27 - Agendas - FinalFAYETTEVILLE • THE CITY OF FAYETTEVILLE, ARKANSAS • FIRE PENSION AND RELIEF FUND BOARD NOVEMBER 27, 2002 AGENDA A meeting the Fayetteville Firemen's Pension and Relief Fund Board will be held on November 27, 2002 at 10:00 a.m. in Room 326 of the City Administration Building located at 113 West Mountain Street, Fayetteville Arkansas. 1. Approval of the minutes 2. Approval of the pension list 1: Surviving spouses 3. Investment report -4. Retirement of Ralph Tate 5. Change address for Northern Trust mailings 6. Other Business - 113 WEST MOUNTAIN 72701 473621-7700 FAX 479676-8267 • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 1 of 30 MINUTES OF A MEETING OF THE FIREMAN'S PENSION AND RELIEF FUND BOARD OCTOBER 30, 2002 A meeting of the Fayetteville Fireman's Pension and Relief Fund Board was held on October 30, 2002, at 11:00 am in Room 326 of the City Admuustration Building located at 113 West Mountain Street, Fayetteville, Arkansas. Present: Ronnie Wood, Pete Reagan, Danny Farrar, Marion Doss, Robert Johnson, Marsha Farthing, Steve Davis and Kit Williams and Deputy City Clerk, Gina Roberts. Absent: Mayor Coody (at the beginning of meeting), Heather Woodruff. Asst. Chief Doss presided the meeting: First thing is the approval of the pension list. Do we have minutes? Minutes: Pete Reagan moved to table the approval of minutes until the next meeting. ??? seconded the motion. The motion passed. Pension List: Regan asks is everything the same? • Doss: Approval of the pension list is open for motion. The motion is seconded and passed. • Investment Report: Kim: I am sorry Elaine is not here today She was in Tulsa today and wasn't able to change those plans. I can deliver your report but I Just can't give all her wit and wisdom that she usually brings along with her. The first page, pae 1, Just shows the appraisal of what is in your account currently as of last Friday, October 25 Your common stock equity portion of your account, stock and your mutual funds are at 35% which is within the range that you've approved. On page 2 you see your preferred stocks and corporate bonds. The first and third ones that are listed under the corporate bonds on page 2 are General Motors and General Motors Acceptance Corporation. We have so far sold 190,000 of those GM and GMAC bonds but we still own that 90,000. The first 140 was sold before their credit downgraded to triple B. Triple 13 is still considered investment grade but we are still looking to sell those last 90,000. We also have sold Ford bonds. You don't own any Ford bonds in any accounts. Those have also been downgraded. They're not considered less than investment grade or Junk bonds right now but they are trading that way. We have sold them for you at about 98 cents on the dollar. Right now they are trading about 88 cents on the dollar so those are completely out of your corporate bonds. The list continues on page 3. Then on page 4 you'll see that your corporate bonds right now are down 12.9% of your account. We still own Sola International and the Enron bonds. The Enron bonds... • • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 2 of 30 Reagan: Are there any takers on any of those? Investment Rep: There is absolutely no takers on the Enron bonds. We moved that price on your report to zero. The sola bonds, we are still not able to get any competitive bids on those. But they did release some good earnings yesterday which is good and hopeful and we may be able to following those earning get some competitive bids on them for you. But we are still listing those as restricted since they don't fall within your investment policy. Listed next are government bonds and government agency bonds But the government bonds, agency and insured CDs they are now 29% of your portfolio. And that's going to be right up to the levels that we want to see it. When you we started out, I think the government bonds were less than 11% of the account and they are almost 30%. We are using that more to the level that we want to see them at. We can just move on and review the rest of your agencies. The CDs are listed at the end and then on page 7... Your total net value is now 9.838 million. The next page, page 8, lists the gains, realized gains and losses that have been realized since the account has been under our management at Northem Trust Company. Those are the ones that we have done since the account transferred in. There's been 365 thousand in losses realized. Your net income would be dividends and interest on your bonds since then has been 28 thousand. Included in that realized gain and loss number is a net gain of $9,334 that we've realized on the hedges in your accounts. Those are the covered call options that we had talked about as we were protecting your stock values. The options value increased so we were able to realize under $10,000 in gains for you through those hedges m October. The next page is your largest holding. Right now General Dynamics, Pfizer, Citigroup, Home Depot, and Fannie Mae are your largest equity holdings. If you'll go back to page 1 you'll also see that you own Standard & Poor's depository receipts and those are listed under common stocks. And that's 9% of your portfolio. What we are using those for is as we're selectively picking stocks to put into your portfolio, we're kind of using that as a plug to maintain a neutral weighting in the market so that you do have that equity exposure immediately without us having to put any individual or put more individual stocks in there than we're ready to buy right now. So we're holding that just to maintain your equity weighting but as we buy individual stocks we'll be selling out of those. The next report is several pages. That's just a listing of your fixed income holding. It lists it by the S&P and Moody's ratings and then if there is any call features on it I think we've completed all of our research on those bonds. We've got good credit ratings in there and we monitor those on a monthly basis. As news comes out on the companies we make sure that your credit ratings are accurate. If you'll skip on to page 14, that's kind of a snapshot of your whole account in your fixed income securities. In particular, right now your fixed income securities earnings are $208,000 in annual income, and your total account is eaming $313,000. That's just in your income, dividends and interest that's coming in. The yield on book value as of October 25 was 5.2% on your bonds. • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 3 of 30 That's a little bit lower than it was last month because we sold a lot of the high risk, high coupons and junk bonds in the account. So that's come down just a little bit. You total portfolio yield is 3.3%. Your average maturity on our bonds is about ten years. And the bonds are about 42% of your total portfolio. With 10% of that maturing in less than 3 years. The next report has just a tittle one line but as we have more of a history this will grow. Your returns so far since we've managed the account yourequities are down 2.4%. Your equity mutual fund is down about 7%. Fixed income is up 2.2% and your total portfolio is down 1.7%. That can compare to the DOW over the same time period which was then down 4.2%, equity then 3.5% of the NASDAQ. So your bonds have kept you from having that market performance in your total portfolio. Reagan: When you run these numbers are you figuring the Enron and the other. Rep: Yes, everything. Reagan: So they're going to make it much larger. Rep: Those were priced at the time that we started at the market value at that time and basically they haven't moved and going through the low and little bit lower price and that much difference. But yes that includes everything. The last report is model portfolio report; we had showed you this one last time. We will probably just continue to put this in your packages. It shows you where your account forms, where your industry ratings stands in relation to the averages of 500. We're still kind of selectively buying stocks for you and filling in some these positions but this will give you just a snapshot at this point in time. If you'll go page 18, it lists the energy weightings in oil and gas The report shows that you are at 9.34% and the averages at 3.5%. We have sold since we completed this report, we have sold your British Petroleum AMOCO so your actually weighting is down to 8% in the energy. We'll probably move that one to an industry neutral weighting as we go. I'll give you a chance just to look at that and if you have any questions on that just let me know. The last thing in the binder is your investment policy'. This is the policy that you approved at your last meeting. 1 left everything that was changed in bold so that you can refer back to what changes were made to the original policy. I've also brought good copies that need your signatures. We also need the Mayor and Heather's signature so I can leave them with you to sign and just get them back to us. Reagan: Okay. Rep• This is the policy that was approved at the last meeting. Even though Elaine is not here she did send along her outlook for March. • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 4 of 30 Reagan: Its better when we started Rep: That's kind of one of the uncertainties that's still out there. We're kind of winding down to end of third quarter earnings season right now, but the worst of it is behind us. But there's still a lot questions in the market. The rally that was seen recently is probably more a result of what time of the year it is as opposed to good news coming out of any companies or anything specific. We're getting down to the end of the year and we'll probably see more cutting back. There are still questions about the 4th Quarter. First quarter earnings, we don't know how the elections are going to turn out. And how that's going to affect the market. We don't know what the feds are going to do when they meet the day after the Election Day. Like you said there's still war hanging over our heads. So until we have some answers to those questions or we see how those things are going to effect the market we're still staying a bit on the cautious side and staying on the low end of your equity range. Elaine says the market may run up to 9,092 by the end of year. But then at that point we will probably stall out a buy -trading range. If we do see those levels at that point we will probably go out of those S&P's depository receipts that I had talked about earlier. We'd probably go head and sell out of those. Any questions about the report. Farrar: I appreciate all the information you provided. Rep: You're welcome. Reagan: It's a very good report. Rep: If there is ever anything that you prefer that we include in when we do these presentations for you let us know and we will include in the portfolios what you want to see. It gives you information that you want as opposed to what we think you might want. Reagan: Thank you again very much Kim. Rep: I will leave these with her and you can get them signed when all the board members are here and get them back to us. I'll need one for the Mayor too. Gina: Okay. Reagan: Kim, you're more than welcome to stay but you don't have to. Rep: Unless you need me here. Davis: I have a question. Doss: For Elaine or for the board? Davis: On page 6 of your policy. Reagan: Investment Policy? • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 5 of 30 Davis: Yes. Item B Quarterly, the city accounting division shall prepare a statement for a simple way of averaging investments and their return which is considered Do y'all know what this is? Because Marsha doesn't. She's never done that, that we know of. Reagan: Is it not basically this? I just assumed it was being done? Doss: 1 don't know what it is --I have no idea what it is. I guess it's been in this deal. Let's see if we get her. Reagan: That elevator's slow so we might be able to catch her. Doss: That's something that's probably been in the old one. Marsha: It may have been in the old one here...but its something we've never done. Doss: Her changes, their changes are in the bold type so I think that's something that's in the old one. Marsha: But I think its something that we've never done. Reagan: But I think that's the checks and balance? Farthing: We report anything they do. Okay, and we have a big report Anytime they buy or sell anything we have an Excel spreadsheet that we do the same things they do. We mirror exactly what they do. But we've never done a weighted average or investment rate. Doss: This could be the same thing that Arkansas requires. The Arkansas Pension Review Board may require that every two years. Rep: Yes. I thought I was gone. Davis: Yep. Reagan: On page 6 of the Investment Policy. Doss: 6(b). Doss: On Roman numeral V. 6(b) Steve had a question on it. We wondered what that was Marsha: We've never had to do that. So we were wondering what it was Rep: That is similar to the report that was in the package that reported what the performance was That takes into account the realized gains and realized losses. Now I'm not sure what the schedule is that the Pension Review Board uses but we calculated the performance using a • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 6 of 30 weighted average return. And that's where that performance number comes from. That's listed on page 15. Marsha: Y'all do it but we don't do it here at the city. It says the city shall prepare it. Rep: That language was in the policy when we got it. Marsha: It was in the policy. Rep: That was not changed by the board. Reagan: Do you see the need for accounting division to keep up with...I mean they are keeping up with it they're just not generating a quarterly report. Is that what I understand here? Davis: Yeah, well I think it could be quarterly the city accounting division or the investment company. We don't what something in your investment policy that we don't do. It is being done by Longer but it's not something that we do. Reagan: Annually they are. Marsha: Yeah, but we don't get any weighted averages. It is strictly actual information. Rep: For our recordkeeping purposes that could be deleted. Because we will report performance to you every time we meet. And can report it as of any point in time. If you call us and say what our account is doing as of today, we can generate those numbers. Our computer system calculates the weighted average return. Reagan: Do you see any reason for (b) to be in there at all? Marsha: No, because they are going to do it for us. Reagan: You're still going to track it, your dust not going to do a quarterly report, is that right? Marsha: Right. Reagan: I will move then that on advice from the budget office and accounting office that we delete Roman numeral five (b) from the Investment Policy because that is being done by the investment advisor. (I can't tell be sure which he is saying --(b) or (d). Wood: I second it. Doss: All in favor. The motion passed. Fireman's Pension and Relief Fund Board Meeting October 30, 3002 Page 7 Cif 30 Rep: If you'll give that back to me then I will get a new policy together. Do you want me to bring it to the next meeting or would you like for me to mail it to you so that you have the revised portion. Reagan: The next meeting will be fine. Kim: Okay. Anything else before I leave? Reagan: You don't have to make another report, Steve. Rep: Anything else you'll want deleted? Reagan: Thanks Kim. Rep: I had to get some information from Tracy so she may keep me for a little while. Davis: Excuse me, I'm going to get Kit. Ya'll were getting ready for other business. Reagan: Yeah. OTHER BUSINESS Reagan: Marsha, on that cost Department. for the audit is that pretty much the same for the Police Marsha: Yes. Exactly. Doss: Is this based on a dollar amount or .... Marsha: Basically your assets. Johnson: But ours keep going down. Reagan: Marsha while Kits coming, could you go over this for us. Marsha: What page are you at. Reagan: I'm on page 24. ...Reports, budget performances report. Marsha: This simply just says your revenue within your extensions profits which you get in delinquent property taxes which we should be getting this month... in November. Johnson: Did she say delinquent property taxes. • Fireman's Pension and Relief Fund Board Melting October 30, 2002 Page 8 of 30 Reagan: That would be me because I didn't get mine in. Marsha: And then you have state insurance from that and that's your other revenue. The Ione thing about interest done the gain/loss is classified as a revenue stamp and a lot of times you see your gains rather than the losses. So the big thing that's affecting you there is that you have a gams and losses, and that's what you had before Longer. The other thing is the donations you see in your office contributed. This is where you get your money basically. This might make more sense for the fees... You'll see those. It really makes a difference. And the next page is your actual audit. Bank service charges, something that you may not have seen in the past when you contracted Arvest. We use to do like an offset of the earnings and offset of the assets.....and Just split them out so we can see what they are actual figures and see actuary and so that's why we have bank service charge from your checking account. You have $945,000 in here. Reagan: Okay. That total money that's in the DROP that will be paid out. Is this total or is this total estimated they got actually for beneficiaries. Doss(?): That's actually here today. Marsha: What you paid out to the pensioners We have that money accumulated to pay. The back two pages are more in depth detail showing you exactly where the money is. I really didn't have any expenditures except for the pension this month. $75,000 and then the DROP $63,000. And that's about it. Reagan: Let me ask you a question on the last page, the top portion of the pension expense. The last three entries on pension expenses. Marsha: Okay are you on page 185 of Reagan: There was a voided check. It shows a voided check, is that Roy McChristian. Marsha: Yes. I don't remember --that's probably a sales check or something somebody lost a check. Somebody reissued it. That sometimes happens when somebody looses a check. You'll see that check is dated 8/15. And we look at our yearly banking and those checks that have been outstanding over a year we try clear it up....we have to actually send the money down toi the state. Doss: That was a check of 8/15 of 2000. Marsha: Yes see, we wrote off June 2000 and June 2001. ???: You reckon it could of Just been lost in the mailroom? Reagan: Thank you Marsha, we appreciate that. Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 9 of 30 Johnson?: 1969? Is that more than 60 days. Marsha: What's the date of that one. Johnson: 12/5/2001. Williams: I don't think that's going to go through the machine now. Look at that. ???: I cleaned out my wallet. Reagan: I can't believe that. Farrar: Let's just hold that one up. Marsha: Evidently he didn't need it, huh? Doss: I guess we're ready for other business. Are we? Reagan: Who's going for it? Over there. Williams: Are you pointing to me? I guess there is other business. We have a couple of visitors here. A couple of attorneys in town. Mark Martin and Chuck Stutte.. I've given them a copy of a lot stuff we were able to get together on the Merrill Lynch contract, the financial policy. Minutes to try to show that in fact they knew the policy because there's not a -we couldn't find a contract that they have where they actually acknowledge it themselves there was a contract where we hired them. We could find our signed copies but not with their signatures on it. But I think there is enough information and evidence in the minutes and other letters things like that that I don't think that they can feasibly argue that they didn't know about what the financial policy is. I know that you all were also working on it with them --some of you but in a court you need -your testimony will be looked as self-serving. Because you're trying to say well you're liability because of what I'm saying that you knew. So we wanted more than that if possible. And I think we have it at this point. As I told you all before this something where you would need to retain your own attorney in order go after anything you might think you can�get out of Merrill Lynch. I know that—just from what your new financial advisor told you a co ple months ago that there's hundred of thousands of dollars that is potentially at issue here. Where stuff went down and it was the kind of investment that did not follow your investment policy. There also have been allegations or suggestions I should say through the years and some of it, I also provided the man with letters from city officials to you indicating that they were a little concerned about how exactly the account was being managed. And about the figures that were being generated by the purchases of stock and then not being held very long and sold and then they'd be bought again or something. I think Elaine also talked a little bit about that, that tshe had seen some of that. So that's another separate ,sort of potential cause that you might have • against Merrill Lynch if they were doing what in industry is called chuming. Where instead of investing the money stuck around in your account and they were getting paid for it because they Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 10 of 30 • make a commission every time you sell or buy or whatever. And so if you all are interested in doing something about it thenwhat you would need to do is retain your counsel to do that and work out an agreement with the counsel. I think I suggested to you last month and I will do that in front of these other attorneys that I would only do that under a contingency fee sort of agreement. You want who was representing you to have an enough confidence that you're going to recovery money that are willing take a case on and if they are unsuccessful as Mr. Estes was representing Mr. Young yesterday, well then Mr. Young didn't loose anything but got his back chewed. He didn't pay out money; I assume that's contingency fee. I don't even know that for a fact. I've had cases where personally injury cases and if you win in a personal injury case we share the recovery. If you lose, then you client doesn't have a cause of action anymore but they don't have to pay attomey's fees. Because the attorney is kind of betting his own time. And I would think that because of your financial situation right now which is not great in your funds that I would only recommend from my --you can do whatever you want to but my recommendation would be that if you retain attorneys that you do it only a contingency sort of agreement so that you know that you are not going to go down any further. Hopefully you might be able to recoup some losses if these losses were properly attributed to misconduct by Merrill Lynch. Do y'all have any -- I also talked to Peggy Vice, our purchasing agent who assisted you when you selected your new financial advisor about doing a request for qualifications which is what you normally do when you hire a professional. And we've done it of course many times in the city and if that's the route --if you do want to hire an attorney that's what you need to do. You can certainly listen also and do a request for qualifications would certainly go out to any-- • we probably not only would send out to people but it would also be published so that local counsel would be able to see it. If y'all have any questions to ask me and if not I'd like to give the floor over to the other attorneys here and they might have some sort of presentation they want to make to you. Go ahead. Attorney 1: I'm Mark Martin. I an attorney here in Fayetteville and I've have the honor of representing the firefighter's of this part of the country for over 20 twenty years. Over the years we have had numerous cases involving numerous issues. Our most recent case was a case involving free speech on behalf of the firefighters against the City of Springdale. Now that that case has come down I think, most people would agree that that was a good case brought for the right reasons and with good results. My law partner is Ken Glass, the name of the law firm is Ken Glass. Ken as you may or may not know is a member of the Washington County Quorum Court, and Ken played a substantial role in the free speech case, I'm very proud of Ken for his accomplishments. Our law firm has been retained by a number of firefighters to pursue a case of action against Merrill Lynch for malfeasance and misfeasance which we believe occurred. And has resulted in an under funding of your pension fund. To pursue that end I have associated Chuck Stutte who I believe is an excellent business attorney and I think that Chuck with his association would be a valuable asset to the representation needed. It is our intention to pursue this case vigorously, aggressively, and quickly because of the statute of limitations there is a very good probability that any delays in pursuing actions can result in the ultimate outcome and the ultimate sum that is received. And for that reason we feel it is important to pursue this cause of action as quickly as possible. Chuck has had some valuable experience, not only as a business attorney but in causes of action involving a case against stockbrokers, investment firms and cases • • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 11 of 30 which are of similar nature to the one that you are facing. At this time I would like to turn floor over to Chuck and have Chuck discuss theones of liability and our plan of attack. the Attorney 2: Thank you Mark. I am Chuck Stutte and I've practiced here in Fayetteville since I guess 1983. It's pretty much a general practice In the course of my practice I have represented numerous individuals involved in where stockbrokers, or bond traders, several now past employees of the Llama Company. I have participated in arbitration cases. Assuming brokers where Merrill Lynch was essentially on the same side of the case that I was and just recently this last week completed an arbitration claim against Merrill Lynch. In the process, I am privy to some information with how they approach claims. In terms of what their strategy is, with regards to defend a particular claim because of what they do, not because I'm representing Merrill Lynch. It is just because I'm representing local --I know what they've done. When I present a claim, I know how they've attempted to defend against it. And as Mark says we've already been retained to represent several beneficianes that are on a contingency fee basis. We are not asking the board to pay us anything. We are not asking for expenditure of funds from the board because in these cases you may or may not be throwing good money out your bag. You're second guessing the stock. when it goes down. It is easy for us to come back in and say, now with hindsight that was poor investment. They should have picked better. The thing that lyou have in your defense, and I want to thank Kit for providing me some of this information in which you have, the investment policy. Merrill Lynch we know, and you know that based upon your own report from your current advisor, has gotten you in the position, either in stocks or bonds, that were outside the perimeters of your investment policy. They have an obligation to supervise your broker and the account. To know what the limitations are the type of account it is and if they failed to do right then that is negligence. If the broker engages in churning which may or may not be the case, there is different way to determine whether something is churning based not only the amount of time that you are in out of the market on a particular, buy it and sell of stock or investment. That because the are drawing commissions off each of those transactions, al the sudden the renewal that you have to profit on, they not only have to compensate for what they are drawing out in expenses from the funds, but its got to be over an above that. If you would look, to be able to look at to determine whether or not there is a presumption of churning, and likewise we're going to have to have expert witnesses come in and testify that in their opinion that yeah this would constitute churning. Let's assume that that's the case. At this point in t me, it is very early for us as what I consider as litigators to make any type of a recommendation as to how to proceed. Along that line if you're sending requests for services you're going to have to be very sensitive as to how do you describe what it is you are going to be hiring the attorney for. We are apprised by beneficiaries now, some of them, and our objective is to maximize the amount of money to put back in the funds to cover the losses that fund incurred through as Mark said either negligence and the misrepresentation of Merrill Lynch, through their broker through their responsibility. In dealing with the brokerage fine and again out some of the documentations that have been provided that you may and may not be obligated to arbitrate the claim. My experience in the past to file a lawsuit against a brokerage firm they will immediately ask that it be subjected to arbitration. The court, both state and federal honor those arbitration laws if there appears any way that they can compel arbitration they back it up. In which case you go through a NASDR arbitration procedure and it's not that complicated and certainly not rocket science but what it doesn't allow you to do is to have extensive discovery. If you're watching • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 12 of 30 the news lately you'll know that Merrill Lynch has --it's been uncovered that they had conflicts of interest in investments that they have recommended for its clients while having opposite positions. They've got problems with Enron. There may be employees or representatives of Merrill Lynch facing criminal charges on things that you've lost. It was apparent based on the documents that were with the report provided you in bonds and misrepresented the rating of the bond. I think you've got some making of a cause of action. What millions don't know is how that cause of action is best defined in the best approach. Because if it can be in federal court, either because of a class action on behalf of all the beneficiaries to refund the fund, that it may or may not be subjected to the arbitration clause. Additionally if it is intentionally misrepresentation you have the possibilities of punitive damages. Even though they say it's an arbitrary you can't get punitive damages, they virtually never do that. The arbitrators will look at it and say, yeah they should have your investment. Look how the entire market did --everybody has lost money. And that's going to be basically their defense. They are going to say your account lost money but everybody's account lost money. You didn't lose as much as some other people. Our position is that's not what is at issue. What's at issue is you trusted them to invest your money, sacred money. It's in a statute that says anything that is in the pension fund that money is sacred You can't literally spend that on something else. I'm not sure that they would be authorized to hire an attorney for money and spend it trying to chase something which is why we are simply asking if you want to pursue the claim on behalf of all the beneficiaries on a contingency fee standard one-third contracting. It's the same contract that we have with beneficiaries already. Now I talked about not knowing exactly how I want to position this' yet because once you file and certify as a class you have certain obligations and then you've got certain expenses which you may or may not want to do. The beneficiaries that bring it may want to do it because we are refunding the plan with approval of the board and on behalf of the plan. Right now it's all --it sounds real vague because we don't have the numbers of all of your accounts yet. We don't know exactly whether or not the value of the losses and which ones would be attributed to investment outside your trading policy. And while we are investigating the claim on behalf of already existing clients, we would like the board to authorize us to demand information about the plan from Merrill Lynch from your board. The reason being if the board has contracted with Merrill Lynch and we bring action on behalf of the beneficiaries their response would be well the beneficiaries would need to take it up with the trustees, you know with the board. I want to get over that hurdle and I want to eliminate all the obstacles that I'm anticipating what they would try to throw up in the way. Right now they are in a very bad position because claims have hit them from everywhere. The benefit of that is that there are several trial attorneys for other claimants that are in the discovery process also. We have access to shared discoveries with members of the American Trial Lawyers Association. So primarily we are asking the board first to consider us to find or we make a recommendation in the best means to proceed to refund some of the losses. We want your cooperation first on what we are doing already. And second, we would take into consideration to represent the plan as whole to refund in the event we assume that it's going to be expedient It certainly doesn't make sense for us to do the expenses and time of looking up the expenses and.then hire another firm that would only duplicate the same expenses. Because on all these contracts on a contingency basis they are pulling out their policy and trying minimize expenses. Because everything that pulls money out of the recovery is money that's not going to be put back in the fund. That's what we're trying to do and that's what we're hired now to do. • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 13 of 30 Reagan: Let me get this straight. You're asking us for the authority to ask Merrill Lynch for copies of our records and copies of the sales transaction at the first. Stutte: That is the very first thing we need. When we are making demands on the Merrill Lynch first on behalf of the beneficiaries referencing this plan and this fund. We want your authority to do that on behalf of the entire fund to disclose that information to us. That's the very first thing that we want. Williams: I don't even know that you need their authority. There's that thing in Arkansas called the Freedom of Information Act, and they dealing with a public entity, like the pension board, I would think that all their records in relation to the pension board are susceptible to, the Freedom of Information Act. Stutte: We can ask them if the freedom of information act. We can request everything that this board has received but I would like to deal more directly. Williams: Beyond what the Board has received? Stutte: Yes. _ • Williams: Well then okay that wouldn't. It's only the public documents. It's only stuff that they have created for them, for the board that would be under the Freedom of Information Act. That is pretty steep though. They've got some real strict time limits on how they have to behave. Stutte: That's how you guys on the board have to behave. It's not how necessarily how Merrill Lynch would have to behave. I want to be able call general counsel of Merrill Lynch in New York and say, look I've got another case here and here's want we're looking at and this is what I want. And I don't want the defense to be or I don't want them to come back and say I don't have the authority to request that information. I want the authority to do that right now on behalf of your position and its not costing them anything for me to do that. Williams: Let me ask you one sticky question here. You're representing at this point members, pensioners. • Stutte: Right. Williams: This is a Board of Trustees of that pension plan. All the fiduciary duties to oversee the pension plan. Is it your position in this point in time and I guess in the foreseeable future, that the only person, entity that you are going to be seeking anything from any recovery from or making any allegations of misconduct from is Merrill Lynch. Specifically excluding any potential allegations against the board itself. Because they were of course, being told things by Merrill Lynch. Merrill Lynch might say oh we were acting properly and we gave the board; this information, the board needs to know whether there's potential conflict here. Whether you can represent the pensioners without going after the board. Knowing of course, as a contingency fee • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 14 of 30 lawyer, you want to get a recovery. You wouldn't get much recovery out of this board Pete probably has a lot but I don't know. Reagan: I can't believe you embarrassed me like that. Williams: So huh, anyway have you looked at that particular issue, also have you looked at•the issue whether you had any problems representing both the beneficiaries and the board of trustees at the same time. Stutte: At this particular time I'm not asking that we be retained to represent the entire board because we want to maximize like I said the money that goes back into fund. That may be best done by representing all of the beneficiaries and not ya'll individually. That way I'm only asking for the cooperation at this point because I don't know yet which angle from a strategic standpoint makes more sense. Here's a short form, these claims that I know how they'll approach it, they will tell me they only supervise the account. They will only monitor the broker. We're going against the main company. Yes, I'm doing it on behalf of the board. They almost invariable respond with the defense of comparative fault. They'll say yeah we might not have supervised but ya'll had reports, you saw full list of what the investments were, you've got to share some of this responsibility It's a standard defense and anytime there is what they call a sour grapes claim they lost money. Well yeah you've got to accept some of the responsibility for the claim. By us representing all the members and beneficiaries under the plan, I don't have to • make a claim against you if Merrill Lynch is the pocket. Merrill then would have to bring you all in as a co-defendant which I can't envision them ever doing because doing so is almost an acknowledgement of yeah we did wrong knowing that we would still collect all the money from you. By representing all of this, individual members it is our position at this time based on what we know there is no benefit on behalf of all the plans beneficiaries for us to sue the trustee. We want to do it, just from an economic and a strategic standpoint just because of the length of the trial we set up. Again, because we have not seen all of the documents, because we haven't seen all of the information its too premature for us to say this needs to be done necessarily as a class action, or this necessarily has to be filed in arbitration because we are going to be bound by whatever the plan is, or it has to be in the risk of a lawsuit. But it is not too early for us start finding out this information as soon as possible because everyday the statutes of limitation on the claim continues to fall off. Whether it's going to under a negligence claim or whether .a resstipent claim will depend upon which jurisdiction the lawsuit gets filed in. Whether or not it could be federal court, do we want to stay in federal court here or do we want to do New York, New Jersey, where there headquarters are because they like firemen there. Not any more so then here but all of these are the decisions that trial lawyers have to make to maximize the benefits. And under a contingency fee contract we maximize the money that comes back to the fund, it maximizes its own percentage of return. So it's in our best interest to work in all of those options and make an informed decision based upon our assessment of risk. I'm only asking now for permission to proceed on that claim because I don't know that I want the board to hire us and then have our work papers and our notes and our strategy subject to the Freedom of Information Act. The board's hiring if they're tied up with the Freedom of Information Act their attomey's • work product is not always protected. And I certainly don't want to have to negotiate with Merrill Lynch them knowing all of our assessments of risk and benefits because we are reporting Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 15 of 30 what that is. Like I said before we waive an advantage I would like the opportunity to evaluate the entire case and see what I think is in everybody's best interest. Clearly it's in our best interest as attorneys to maximize the recovery based on the largest amount of money we can recover. It's for the benefit of everybody. ???: But the first thing you need is for the board to obtain information. Williams: What kind of document to you need on that? Stutte: I don't think I need anything other than --I don't think I'll need it. Williams: What do you mean? You just need an oral Stutte: A motion that they authonze Allowing Mark Martin and Chuck Stutte to pursue investigate of possible claims against Merrill Lynch on your behalf and the behalf this fund. I entertain this motion. Wood: On behalf of individuals that you're already representing. Stutte: Yes, right. • Williams: And that they waive any privacy or confidentiality that Merrill Lynch might assert. Doss: One thing ???: I second it. Doss: You want to second it? Okay we've a motion and second on the floor. Williams: Go ahead and keep discussing it. Doss: What I'm thinking by representing the beneficiaries that removes this fee estimate. Williams: Well the beneficiaries decide for themselves what they do. Doss: That's what I mean. Now one thing about it, the board, we're beneficiaries too. Williams: Yeah, you're both --you have two hats. Reagan: Are you better off representing us individually though? Stutte: No. There is definitely strength in numbers. And the more beneficiaries we represent, the stronger the case gets presented. It eliminates them picking on this person or that person. • And you're looking at a group fund with a lot individual claimants claiming an interest and! it's hard for them to batch. It just eliminates some of the decisions they could otherwise come into. • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 16 of 30 Doss: We've got some good the beneficiaries on our plan? Stutte: Right. Farrar: What kind of time frame could you get this information that you need for the beneficiaries? What's the time frame that the board needs to make the decision? For the whole system. Stutte: That would be prior to the next meeting. Williams: Well they would --to some extent, if they can be certified as the class then the class would be the entire beneficiaries, so the class would be everyone. So in reality they would be making decisions with whoever is their representative from their class they would be making a decision for.. The entire --almost be taking your position. Right now ya'll have been making decision and they would be to some extent kind of co -equal, because they would be also represented. They'd have to represent every beneficiary that that would be their duty. They would then be representing the beneficiaries and any of their claims. That's what concerns me just a little bit still, about ya'll being brought in as cross-defendants and that Merrill Lynch might bring you in. I can see as a Merrill Lynch attorney that I might want to have you there as co- defendant's because then that might --I can see how that could play in their interest. Saying it's us and the board here we didn't do anything wrong. We as the pension board didn't do anything wrong and these disgruntled beneficiaries are trying to say we did. And use you all kind of as a shield. There is some potential danger for you all on this. I know that you are not the target of Mark and Chuck here. Because obviously, you are not a good target number 1, and number 2 you are really in the class they are trying to represent and trying help; and they are trying help the pension fund and not trying to go after you all. But looking at from Merrill Lynch's prospective they are only going to be interested in anything they can do to defeat this claim and of course minimize it. And so if they could push stuff off on you and use you as a shield in any way then they're going to do it. Doss:. Everyone on this list here --right here --all the members of this plan if they were listed as the beneficiaries they would include us. Williams: That would include you. It'd be funny. I mean you'd have those individuals representing you there but not --you might have to hire a second attorney if Merrill Lynch decides to make you cross-defendants. Stutte: No Avenue is without problems and no avenue is without complications. But we've studied this and we think that the method that we're suggesting would be the cleanest method with the least complications. There's no --there's always potential problems but again we feel this if probably the cleanest way. Williams: 1 would really rather see from your prospective eventually of representation of ;you all at the same time. To try to avoid liability on the board. I don't know whether that's goirig to Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 17 of 30 work. I don't even know if they can tell you that that would be something that would work until they do further investigations. It does have some negatives to. it. I would also --I think that you might still have some Freedom of Information Act if you represent the Pension Board as a class. I don't know that but just for future reference before you write stuff down you might realize that eventually it might be susceptible and so be careful before you write something down. Martin. I think we represent enough representative class members that if we wanted to classify it as a class we could certainly do that. Marsha: I wonder if y'all really would what to wait and include the Mayor here before I would make a decision. Williams: Yeah. Well he should be here. Marsha: And Heather. Williams: I think she even has to vote, yeah. At this point they are only talking about whether or not they are going to authorize them to get whatever Merrill Lynch and they are waiving any confidentiality or pnvacy sort of issues. And I would recommend that you do that. You're not in here trying to hide anything. Stuff is going to come out anyway. We need to get as much information on Merrill Lynch as we can. My opinion is that they were the experts. You all had a • policy that they agreed to. They didn't come toyou and say hey we're violating this policy. And in fact they think they made a firm representation that things were within the policy when they were not. I don't want to scare y'all. I don't see y'all, the Mayor and Heather, thank goodness I'm not on this board, as really liable on this particular case. That doesn't mean to say that you won't be dragged in. But I don't think that you all in exercising your fiduciary duties were told stuff by Merrill Lynch that put you on notice that they were violating the financial policy. I don't know I haven't been here that long. I don't know maybe they did come and tell you that, you'll need to start remembering back if they ever did. I surely would doubt and don't think it would ever show up in any minutes where they came up and said, well you know instead we're going to have only AA bonds but we want these C bonds because we like them. I doubt if they ever came and told y'all that. Does anybody ever remember anybody coming up and saying that they were violating your policy? • Board says no, never. Reagan: As a matter of fact I remember asking them point blankly if we had any Enron. They said, "oh no we don't have any Enron." Doss: I think there's more of a danger from doing nothing. Williams: Oh no, I think we will do something. Doss: We've got beneficiaries here that if we did nothing then I think they would have a good enough claim themselves. I think we need to whatever we can to pursue this. • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 18 of 30 Williams: I think we do and that's another reason also to try to either, one way or another I think you need an attorney to go forward with your part of the case. Whether or not you've, got all the beneficiaries might be represented and if you don't have representation then are you really doing what you should be doing. And that's why I could see the benefit that Chuck was talking about keeping the expenses low. But I would be nervous if I were you if I was doing nothing: Reagan: I think we've got a motion on the floor. Williams: Did you want to say something Chuck you had your hand up. Stutte: Well, finish the one motion which is just a simple authority. Then I'll make another observation. Doss: There's a motion on the floor, all in favor. Majority with a yes. Williams: You might tell the Mayor this is a meeting that he might want to attend. I think he's in his office. Since this meeting was changed I don't think it got on his schedule. • Gina: He already had a meeting that he was suppose to go to. Williams: Well anyway go ahead. Stutte: My next observation is in relation to how best to proceed with the client. As I mentioned before I think that we have enough representative members as class if we wanted to pursue that as a class action, I think we can. But there is a drawback to class actions. There's the expense, the time, and notice provisions. Williams: And they can challenge whether you guys are a proper class. Stutte: So that's an entire other process that .... Mayor: Hey! Are you doing alright? I was trying to get away for a press conference. Trying to throw down Amendment 3 so we can continue to feed these guys. Williams: We're talking about your personal liability on this Mayor, so we thought you might want to sit in. Mayor: Is that right? My personal liability as opposed to what? Bring me up to speed 'real quick. • Williams: Well okay, of course the situation is that there is some real question about whether Merrill Lynch followed the investment policy worked out with them and with the board. They • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 19 of 30 were supposed to follow it. There is some indication they invested in lower grade bonds which are allowed under the policy, these bonds lost money. There's allegations about the way they didn't follow the policy and the possibility did some churning and stuff and so the financial advisors that have replaced Memll Lynch indicate this could be in the nature of a half a million dollars or who knows. But anyway substantial money and because of that the board is and I've informed the board that I felt like they needed to go forward on this. That they need to do a request for proposal from attorneys to represent them potentially against Merrill Lynch. In the meantime, some beneficiaries have contacted Mr. Stutte and Mr. Martin here about possibly doing a class action. Which is another way to go about doing that. There are pluses and minuses on both ways and we've discussed them. Mayor: Just a second. How big a class? Williams: The entire pension benefit group which is this page. Mayor: So it's just local Fayetteville then. Williams: Oh yeah, yeah. Mayor: Not a bigger class. • Williams. Just this class has potentially $500,000 worth of damage. So it's a big enough class to justify itself. There are pluses and minuses for that because probably are going to have to do arbitration if it's the board. The class might not be stuck with that. We might be able to go to court instead. We have a chance for punitive damages in court and probably none in arbitration. There's some danger because Merrill Lynch very well might try to make the board including yourself, cross-defendants and saying well no we just did what the board told us to and therefore we shouldn't pay anything, let the board pay, the other thing is I think everybody's agreed to that, the board needs to go forward themselves, because they've got a fiduciary duty to protect the funds and it looks to me that there's a reasonable chance that some funds are due. And that Merrill Lynch is not just going to probably try to send us a check. So that's just a kind of the situation, the board has already agreed to do what Chuck asks, which is to authorize Merrill Lynch to send all their documents relevant to their handling of the pension board's finances from whenever they were hired to when they were released and we've waived the confidentiality or privacy rights that we might have to it. They just passed that motion, that's where we stand right now. And we would have done the same thing --this is part of the discovery that we want to find out as much information as we can about the case. Certainly the board is not wanting to hide anything and wanting to cooperation if possible but we do have a little of a situation here whereas y'all need a little bit representation to protect too. Mayor: So have we begin, done documentation yet that basically states what the policy is. Williams: Oh yeah. The policy was written down. Mayor: Merrill Lynch was helping formulate the policy. • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 20 of 30 Williams: Well yeah, I've given that documentation to Mr. Stutte and we have been working on that to try to get together. Unfortunately we don't have a signed contract with them. They probably do. We don't have a signed contract with them, we signed it. We don't have Ione where they signed it but it is mentioned in the minutes several times. There's some letters to all that indicate that, where it's referred to. So I think that there is enough evidence that they) are actually trying to deny that we could tell if they were lying. So I think that we have crossed that hurdle. That was the first hurdle I was concerned about because if you couldn't prove that, then we're pretty much dead in the water. But I think we can prove that now or Chuck can prove that and so we're at the next level about did they actually violate it, how can we prove it, did they chum the accounts. How can we prove that. And that's why the board is talking to these attorneys. Mayor: Well the easiest thing that, I mean, sort of like one day shown is that Mr. Yada's!last meeting was showing some bonds rated B rating and then we find out that it had been downgraded to a much lower rating for a whole year and still hadn't shown. Williams: Yeah, we'll have some smoking guns out there. Mayor: That's a huge problem because well, we get into. There's been long discussion about changing away from Merrill Lynch. Williams: I've given that kind of letters and stuff to Chuck from some of the previous concerns that the city had. Mayor: Who are you representing? Stutte: We represent a number of beneficiaries. Mayor: Both of you are together. Martin: We're co -counsel on a case, mayor, involving a number of beneficiaries of I the Firemen's Pension. Mayor: All right. Williams: What I would suggest at this point in time, you've got the authority now. If Merrill Lynch wants it in writing well I guess we can do some letter or the minutes or something will show what it says and then we can provide it to them and Heather can certify the minutes if it has to be. Mayor: Right. Williams: So I think at this point in time we need to provide that to you since we have verbally now and in writing if Merrill Lynch requires it. And allow you to do some continued • • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 21 of 30 investigation into this to see where we are at. At the same time I think we ought to at least authorize Peggy to present a request for qualifications from people. There is various different ways to select people and one of the ways you select someone is expertise, local access can make a difference. In other words there was a guy that lives right here in Fayetteville and that's going to be a lot better to represent you then someone out of Kansas City that has to drive down occasionally to meet with you. So that's the pnce if we do that on our request for qualifications sometimes we do put something in there because local access is good in many ways whether you're an engineer or attorney. But I think we probably need to go forward on that because that's the city policy that y'all need to follow on selection. And there will be a selection committee that you all would need to be. You could do it as a unit as a whole. How can it be done most sufficiently and at this point you already have one group here that already is going to be doing some of this work. So I'm not saying that you have to hire, if they solicited this job from you but it would certainly be possible, it would be up to your judgment who you would hire But I think you probably need to go forward on that because I think you are going to need some representation. Stutte: Let me just say at this point that we're representing the beneficiaries. Williams: Well that's what you're doing right now. Mayor: none of these guys? Williams: Oh no --they're all beneficiaries. Mayor: You are representing them as well. Reagan: Well, no not yet. • Stutte: Not yet. Stutte: We certainly would consider representing every beneficiary individually not necessarily having to have it certified as a class because we have individuals contracted to pursue it. Depending upon whether or not the individual as a beneficiary is bound by the board signing the contracts that requires arbitration is an issue we are going to have to consider, that's why we requested permission to see what Merrill Lynch's documents are that they have in their files, that they obligated to have these within your file with regards to trading. I want to see what they have that's signed and then we make a determination as to whether or not we think on the behalf of the individual beneficiaries the board would, could or should be made a possible defendant. If we made you all, made the board a defendant along with Merrill Lynch all we have to do is prove damage. A portion of the damages between the city defendants. If Merrill Lynch wants to say oh it's more the boards fault, we as the beneficiaries can collect from the deep pocket. Williams: But Merrill Lynch might tum around and try to hammer youall as much as they • could. • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 22 of 30 Stutte: The PR problem they have right now they don't need to be hammering firemen Mayor: The state of Iowa just sued Merrill Lynch, because their pension funds have now halthe state employees including their fire and police. I don't know why, I think that other states are probably joining that lawsuit. I don't think they are going to be in any position to fight every state in the country and all the cities. Williams: No, they might not have enough money though to pay off everybody either. Mayor: Pensions and public pensions are at the front of the line for collection from what I understand. Stutte: You need a priority claim just to get in line. That's way we saying time is of the essence to do so. Reagan: Let me ask you a question, Chuck. What was your other request? Stutte: He asked a question. One other thing that we are requesting from this representative board, that to the extent that we are investigating this claim. We don't mind the board piggy backing on us. So there's not a duplicate of effort or expense or anything else because we are of the opinion that minimizing the expense will end up maximizing whatever gets paid back into the fund and that's what we are trying to do Williams: How long do you think it would take before you would have enough information to be able to report to the board what you recommend at that point in time. Stutte: We need two things. Depends on how quickly Merrill Lynch responds to the request to the documents that are in their files. The next thing that we need is copy of the statement or the reports that would reflect the investment stats they have and that they would be representing that they have. Marsha: We have it here. Williams: We can provide that to you. Stone: That's it. Some of this is going to be number crunching. Some of this number crunching has already been done when you transfer it to an account. She has identified that prior to bringing in certain investments, she didn't want them in the account because they weren't within the perimeters of your investment policy. So from that extent we are not having to reinvent the wheel. But what we don't know is its only been evaluated as to what was held then and now. Williams: And how far back. • • Fireman's Pension and Relief Fund Board Melding October 30, 2002 Page 23 of 30 Stutte: Yeah. So it's also come to light in regards to Merrill Lynch that a lot of their conflicts on stocks they were having their people invest in were contrary to the positions that they held. I don't know how much of trades were done based upon what we paid to the broker. ???: Isn't the broker's account on this list. Stutte: On prior stuff. And we are going to have to spend some time to crunch those numbers. Williams: What I would suggest then is that we wait to hear from you. We will have a regular meeting in a month whether you are here or not. If you are ready or when you get ready, to make a report in less than month why don't you let us know and we'll schedule a special meeting. Okay? Reagan: Thatsounds good. I Williams- And we can get a schedule within a couple days probably. That would make everybody's schedule work but, so we'll kind of wait to hear from you, and in the meantime we'll get him the reports we have. Marsha: How many years? Stutte: Here's what I would like, the last three years of monthly reports. Do you get monthly statements? For the last three years monthly statements. Three years prior to that I want just the annual statement to show what it was each year. And the reason being is on some claims we are going to have to create a statute of limitations which I can look at more directly on the risk of claims that would otherwise not be barred. If we can make it in the risk of claims we'll go back six years. And I just want to look at those numbers to see if the correct flag goes up. Now for us to actually go back that far and collect is likely slim Marsha: Do you need actual confirmation sheet or just a broker's claim. Williams: How many years did he provide all that to the board. ???: No. Marsha: They never filed a monthly statement. Williams: Well did he make monthly reports to y'all and give you statements? (Everyone talking at one time.) Reagan: No. Mayor: Basically, it was the performance of the investments. • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 24 of 30 Stutte: Now Merrill wouldn't have sent you a form that would have a summary basically showing the percentage of assets allocated in this here and there. They probably gave you a report of just their summary sheet. I need the trade sheets, I need the ones that actually show the in and out activity. Marsha: We also have a schedule that summarizes every stock they sold and how much we gained or lost. Like on a Lotus spreadsheet. Stutte: Oh that you did separate? Marsha: I'll have to get it out of microfilm. Gina: Oh no.(laughing) Stone: Yes. Williams: Okay. Stutte: Is that information that they have on a computer or is on hard copy. Is it something }hat you could just copy to disk and allow us..? Marsha: I don't know how far back we have it on disk. We probably would have say three or four years on disk. Williams: He only wants three years of that. Marsha: You just need previous annual statements? Stutte: Yeah, I just need the annual statements on that. sheets is it something you could just copy to disk. This information that is open to anyway. The detailed lists that you have your will save the paper flow. And that's Williams: No you're entitled and anybody that wants it can get it. Marsha: I wanted to say that I'd copy a disk for you and its Lotus. This year's will be in Excel. Stutte: Let's try that. Williams: If it doesn't work then we'll do something else. Stutte: If it causes problems. Williams: If it crashes your computer. Martin: We'll take any forms you have. • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 25 of 30 Marsha: But you would like to have the confirmations on that. I have all the files three years back. Williams: I suggest we still ask Peggy to go forward with a request for proposals for an attorney to represent the board on this. It might be that what you'll decide to as a board is simply to retain the attorneys that are currently working on it. But I think we need to start moving forward to demonstrate good faith by the board that you're doing what is necessary. Farrar: It's confusing to me, they've already got the beneficiaries which are us. Williams: And you can certainly consider that when you select someone to represent the board. ???: 1 wish Williams. Well you did it the hard way. You don't have to interview anybody. You can decide it all from what they write to you. You sure don't have to spend two days interviewing everybody that comes through. ???: But that they're already here. They are already representing part of the, maybe not, the board but the plan. • Mayor: He's thinking he might already be using this guys. • Williams: The problem is the board is not and the board has certain rules and procedure that the city has to go through and I think that you all would be much safer especially in a situation like this to go through. Mayor: If you think we need to it, then let's go ahead go through the RFPs? Williams: You're the ones that make the decision after RFPs come in who you want to hire. Mayor: Yeah. Let's just go ahead and put out the RFPs and we can select who we need to select and just make it cut and dry and clean that way. We'll probably go ahead and go on with these guys Reagan: I think what needs to be done is attomeys, I am sure they're sitting around reading the paper every morning, but I think something should be in the notice that. Williams: Oh no, you can't do that. Reagan: You can't do that. Williams: Were not going to say, oh by the way we're putting this out but we don't want you to apply. (laughs) • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 26 of 30 Stutte. Here's something to consider when you're putting out your qualifications. Williams: What's your qualifications9 Stutte: When you're sending it out, request out you might only just publish it in the local paper opposed to sending it to New York and all over. Mayor: Fayetteville is attorney rich. I don't think we need to go outside our local paper to advertise. Stutte: Yes. Do whatever is obligated to meet your responsibilities. 1 am not sure that! the appointment of attorney, were this not an hourly fee that you've got to send that out. 1 also don't know if there would be a conflict to the extent that the board could be negatively on the opinion of Memll Lynch. In which case, is the same claimant/plaintiff's attorney that you're looking for send a subpoena? Make sure one that that is the deal. The only reason we're not pitching to us to immediately represent you is that I don't want to go into a conflict initially. Mayor: Now would Scottsdale, if we had to be defended by somebody else? Williams: No they don't represent them, they might represent you. I don't know though, city • money wouldn't go to that and so how would they pay the $50,000 deductible. ???: Did you say the problem, our problem was that evidentially the Pension Board might be sued? • Stutte: Not to the extent we're pursuing our claim on behalf of essentially all the beneficiaries to recovery the money for the fund. To that extent we're all swimming in the same direction;and going after the same recovery. Where it may get tricky is whether or not a possible inferior cause of actions in our opinion would have greater success and a greater likelihood of a larger recovery, if we got around the arbitration by suing them directly in federal court. And we sued , for misrepresentation and fraud which we've got documents that could uphold fraud. If we prove that it was intentional they were holding funds they had, you may get a fraud claim with some of their investment fee. I think there's a high probability and then you get to add in punitive damages. Well at this point in our trying to determine what is in the best of all the beneficiaries, we don't know which avenue yet we would recommend they take. So we cant go back and talk to the beneficiaries we represent and say we think you ought to waive any possible claim in federal court. Let's go along with our other client, "the board" and because we represent the board we're obligated under document to stay inside the state we have to arbitrate, It may very well be and there's some case law to suggest that if they've got contracts and again I won't know until I see what contracts they have in the files if whether arbitration would be compelled or not. Williams: Of course, they're going to argue that it's going to be compelled against the beneficiaries too because they already right to the board. And you notice, when the mayor's • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 27 of 30 talking about the other pension boards going after Merrill Lynch, that would certainly be a cleaner way to do it even if you might not be able to get into federal court on some of these other claims. I just hate to see this be a disunited effort. Reagan: Yeah. Stutte: Prior to making our decision and again that's what I consider one of the considerations that we're getting m exchange for the permission to pursue on your behalf to fight, because Merrill Lynch would have those documents. If its prior to us making any recommendation or at least putting you on notice what we think would be doing on behalf all the beneficiaries submitted to y'all so that you know whether or not we're going to name the board as a defendant or if we think that it needs to be presented all together. And even if it is presented all together through arbitration, the key in arbitration as it is in trials but it's more important in arbitration, is numbers. Calculating which investments were outside the plan and being able to establish what the damage was as a direct result of that, churning. How much money did the plan lose as a result of churning, either by paying out additional commissions, or in losses that it otherwise wouldn't have. It's not real exciting but it is what gets the money back in your pocket. Its crushing the numbers and these are the losses. Williams: We'll have a meeting and y'all come back and I think, I would like to see the board also be taking a leading role in preserving the assets of funds which are your duty placed upon you statutorily and that you've all assumed by being members. So I would hope that we could all work together here. Because I would hate to see a situation where you're going to get pointed at in the trial Now its one thing for them to say as a defense, "well y'all didn't do your job." And I don't think that's going to fly very well when Merrill Lynch the expert says, "you should have known what they were doing." Mayor: You should have known we were screwing you. Williams: So I don't think that works very well, so I hope we'll just wait and see what you find out and make sure that you check the case reporting about whether or not beneficiaries will try to sue separately or not still bound by what the Board of Trustees has agreed to. The only way they get rights because of the Board of Trustees. I think they are probably going to be bound,1 my guess would be is that there's some case law out there saying that the beneficiaries are going to bound it. Stutte: From our standpoint on behalf of people that we do represent we see no value in bringing action against the board, our claim is against Merrill Lynch. Merrill Lynch may want to come in and add the board as a co-defendant that may happen. Williams: But it wouldn't happen if you were representing us though. Stutte: As long as the board is agreeing to cooperate with us on pursuing the claim on behalf of • the beneficiaries, I think the board is doing it's fiduciary obligation to its beneficiaries by saying we are helping recover those funds, and at some point and I don't think that's today, but at some • • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 28 of 30 point that we determine that its in the best interest of not only the beneficiaries but the board to unite. effort together as plaintiffs then by all means, I would anticipate we would ask that you consider us to do that on your behalf also. And whether you get requests or consider it necessary to get RFPs to comply with any requirements take that into consideration. Martin: Basically, let us get our homework done and come back and tell you where we are. Williams: That's what we need to do. We're not really ready at this point to make a final decision. Stutte: We're not asking you to. Reagan: Are you going to notify us when you get enough information then if we have to set a special meeting, because our next meeting is scheduled for Thanksgiving Day. Williams: Let's not, lets reschedule it. Gina: I've got down it's for Wednesday at 11:00 on the 27`h. Doss: Thanksgiving eve? Gina: Thanksgiving Eve. Reagan: Do you have a problem with meeting at 10. can we move it to 10? William: Let's say 10. Gina: Okay Mayor: That's fine with me. Sometimes we run over into lunch hour Gina: Okay. I would like to get how you'd like that motion read so if the minutes do have to be certified I'd like to know how its suppose to be worded. r I ???: How do you remember that was an hour ago. Williams: Why don't we do it like this: It was a motion that was requested by Mr. Stutte so can submit some language for the motion as you would like it to read and I will check it with our clerk and make sure it's the substance of what was made. And then that'll be it. Stone: Basically it's authonzmg you to obtain information for the beneficianes. Williams: And waive any confidentiality or privacy rights that we might have. • • Fireman's Pension and Relief Fund Board Meeting October 30, 2002 Page 29 of 30 Gina: Yeah, that's what I've got. Stutte: In essence you are allowing us to represent the board for discovery purposes at this time. Mayor: Basically we would be doing our fiduciary responsibility but not signing on Is a member of the lawsuit. Stutte: Right. Mayor: So if Merrill Lynch does decide to tum around, we won't be in the headlines. Williams: Yeah you will. You'll still be in the headlines. ???: Really. Williams: That's why I'd rather them represent the board if possible. And at that point if you're representing the board and Merrill Lynch turns around and says it's the board's fault that's just a defense that's nota claim against the board. So you all would get to defend us on that as part of your contingent fee. So we wouldn't have to hire a private lawyer, paying pension money out to that lawyer to represent you which would just cause money to be spent from the pension fund Stutte: The only reservation on us doing that is, if we think that that's a realistic possibility and at this point, I don't believe it is, but if it was a realistic possibility that I thought a cross claim or the defense is comparative negligence would have any merit whatsoever to the extent what 1 we would foresee is the comparative fault that they might could assign. That's going to reduce the number. To the beneficiaries' prospective that would be between you all. We just didn't have the whole number. If it's raised as a defense on the plan then our net recovery for all the beneficiaries would be less. That's like I said until I know how strong they would consider pointing the finger back at the board or raising that comparative fault defense it's premature to say I think it is in the beneficiaries plan not to have you as plaintiff where that would dilute a possible recovery. From our standpoint and on the beneficiaries' standpoint it's all about the recovery. Williams: But they, he would have to conclude that there was some wrong doing by the beard in order get a percentage of fault against you. Stutte: Some of that I would know after talking to the general counsel. Mayor: Alright, thanks. Stutte: Thanks for letting us appear. Doss: Thank you very much for coming. Mayor: Good luck, in the best way.