DALLAS - A settlement that officials with Peacock, Hislop Staley & Given say is in the works could enable the Phoenix-based broker-dealer to resolve a May court judgment awarded to an Arizona issuer that could have bankrupted the firm.
"We are moving closer -- the other side was on vacation, but they returned on Thursday," said Thomas Hislop, a partner with the firm. "We are sending them an acceptance of a number and expect to finalize an agreement soon."
A Pinal County Superior Court jury on May 3 levied a $6.16 million judgment against Peacock Hislop in a lawsuit brought against it by the Superstition Mountains Community Facilities District No. 1 in Apache Junction, Ariz. The district, located just south of Phoenix, accused the firm of negligent misrepresentation, breach of fiduciary duties, and professional negligence during its work as financial adviser for a nonrated revenue bond issue in 1994.
That judgment could have had dire consequences for the firm, according to information disclosed in an offering document for an unrelated school bond issue in Arizona. A preliminary official statement for $60 million in bonds sold in May by the Washington Elementary School District, a part of the Maricopa County Unified School District, for which Peacock Hislop served as co-manager, it stated that: "If a settlement is not reached and Peacock chooses not to appeal, Peacock may not have sufficient resources to pay the judgment. In that event, Peacock may seek voluntary protection under applicable bankruptcy laws, which could result in reorganization of Peacock."
Because settlement negotiations with Superstition Mountains have been confidential, officials with Peacock said they could not release the terms of their recent settlement offer. However, Hislop said the proximity of a settlement means the situation is "less of a crisis" than it could have been.
"We believe we will have the concept of a settlement within the week," said Douglas Cole, a spokesman for Peacock Hislop.
The firm was hired to serve as financial adviser for the Superstition Mountains district around the time of its creation by the Apache Junction City Council in 1992. It served the district in that capacity for an issue of $21.9 million of sewer revenue bonds in 1994, although, according to court documents, Peacock Hislop resigned as the district's financial adviser prior to that sale in December 1994. The firm did not serve as financial adviser at the time the district sold $10.2 million of Series 1995 revenue bonds.
The proceeds of both the 1994 and 1995 sales financed a wastewater treatment plant and collection system in the district. Mesirow Financial Inc. underwrote both issues, selling all of the bonds to Allstate Insurance Co. Allstate also owns $26.8 million of special assessment bonds sold by the district in 2000. A.G. Edwards & Sons Inc. underwrote that deal.
According to the original complaint filed on the district's behalf on Aug. 24, 2000 by the Phoenix-based law firm Morrison & Hecker: "By letter dated November 1, 1994, PHS&G informed the District that it resigned as the District's financial advisors. The letter set forth a purported explanation to withdraw, but did not alert the District to all of the concerns PHS&G had as to the viability of the Project."
The court documents further allege that while serving in its capacity as financial adviser, the firm "failed to perform fully and with a reasonable degree of care the duties it owed to the District."
In 1997, district officials filed a petition for Chapter 9 bankruptcy.
"The district has only been able to pay a small portion of its debt service obligations under the Bonds," the original complaint stated. "Studies performed in connection with the District Plan for Adjustment of Debt project that, if the District substantially increased its rates and the Bonds were adjusted to require an interest rate of 9.25%, the District would be able to repay $16,166,000 on bonds issued in the original principal amount of $32,100,000."
While the district did not comment for this article, in its lawsuit, district officials alleged that Peacock Hislop had a duty to notify them of any concerns it had about the financial feasibility of the Series 1994 bonds. The original complaint stated: "In making the misrepresentations or omissions ... PSH&G was negligent. The District relied on the misrepresentations or omissions alleged above in making the decision to proceed with the Project and to issue, offer, and sell the Bonds."
Officials with Morrison & Hecker, Allstate, A.G. Edwards, and the district did not return calls seeking comment.
