Power association GM: Most Stanford funds returned
The general manager for Magnolia Electric Power Association saidMonday the area service provider had recouped almost all of themore than $5 million it had invested with an embattled financialgroup.
The Northeast Mississippi Daily Journal reported that theSouthwest Mississippi power association recouped $3 million of a$5.3 million investment with a defunct financial group. Theinvestment was uncovered during a public records by the Tupelonewspaper.
However, Darrell Smith, general manager with Magnolia ElectricPower Association, said the company has actually recovered $5million of the initial $5.3 million investment with the now defunctStanford Financial Group. The group has been shut down amidallegations of massive worldwide fraud.
“Back in late 2007-08 this money was invested in a bondaccount,” Smith explained. “It was lying there doing nothing. Atthat time (the board) decided to invest it where it could takeslight advantage of the market.”
Smith also explained that this was standard practice among powerassociations.
Emergency reserve funds are maintained for many years. It allowscompanies to be eligible for lines of credit, especially inemergency situations like Hurricane Katrina.
“In 20 days we spent $20 million,” Smith said of the 2005disaster. “The power was out and we weren’t bringing in revenue. Wecouldn’t possibly maintain a system without a reserve account.”
Smith said it is part of his job to recommend to the board whereto invest the money, but it is up to each member to do their ownresearch and decide what to do. The board decided to go withStanford, which came up clean by all accounts, Smith said.
“There was a local agent we knew,” Smith said. “That wasimportant to us. We chose to go with a very conservativeportfolio.”
Of the initial $5.3 million invested, Smith said $5 million hasnow been moved to separate accounts. A new adviser in Jackson hasbeen sought out and $3 million in mutual funds were moved there,Smith said. He said another $2 million has been moved to a generalpartner who will manage the funds until they regain some of themarket losses.
“We actually have control of $5 million of the originalinvestment,” Smith said.
When news of Stanford’s downfall was heard, MEPA hired aconsultant and a financial attorney.
“We also sought guidance, as we knew we could from the(Mississippi) secretary of state,” Smith said. “That office wasinstrumental in helping us move the $3 million in mutual funds to anew advisor in Jackson.”
Smith also expects to collect the remainder of the investment,$300,000, through the Securities Investor Protection Corporationand through the U.S. Securities and Exchange Commission.
“There were gains we were entitled to,” Smith said. “But Iexpect to recoup the original investment.”
Smith said he along with the board has learned from thisexperience.
“We basically have a new investment policy the board hasadopted,” Smith said. “It is very conservative … We are going todo the best job we can with who we invest with.”
Smith said no one has the ability to look into a company and seeany wrongdoings.
He also said that the association’s 34, 313 members won’t beaffected by the recent loss and that members will actually seeabout $1 million in capital credits returned to them this year.They may also see power rates lowered during the first quarter of2010 due to the stabilization of natural gas prices, which is usedto generate power.
“This Stanford thing has not affected rates at all,” Smithadded.
Magnolia Electric Power Association serves customers in Lincoln,Lawrence, Franklin, Walthall, Amite and Pike counties in SouthwestMississippi.