(The Associated Press circulated the following story by Martin Crutsinger on May 27.)
WASHINGTON, D.C. — Oops. A red-faced Treasury Secretary John Snow, who has been going around the country preaching the importance of financial literacy, can now point to himself as a glaring example of what not to do.
It turns out his investment adviser made a $10.87 million mistake. Snow didn’t catch it because he didn’t bother to read his financial statements for more than a year.
Snow had told the adviser to invest the money in U.S. Treasury securities. Instead, the adviser used the money to buy bonds held by the biggest players in the mortgage market: Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
These government-sponsored enterprises just happen to be the targets of an intense administration campaign led by Snow to bring them under tighter government regulation.
“The secretary views this as very regrettable,” said Treasury spokesman Robert Nichols. “He is committed to the highest standards of ethical conduct and he is upset.”
Treasury ethics officials uncovered the error on May 10 after Snow asked them to review his annual financial disclosure statement, a document that all top government officials and members of Congress are required to file.
Snow then ordered the bond holdings in the mortgage companies sold. He incurred a loss of $478,000, Nichols said, even though a Treasury Department ethics officer ruled that the holdings did not represent a conflict of interest.
Nichols described the mistake as the result of a misunderstanding between Snow and his investment adviser.
Snow took the Treasury post last year after heading up railroad giant CSX Corp. and told his adviser to invest in Treasury bonds to avoid any conflict of interest.
The adviser, however, thought he had the power to invest in the bonds of such companies as Fannie Mae, Freddie Mac and the Federal Home Loan Banks as well as U.S. Treasury bonds. And so, without Snow’s knowledge, he purchased $10.87 million of the corporation’s bonds for Snow’s portfolio, Nichols said.
Snow has been receiving periodic financial statements over the past year that showed he owned the mortgage company bonds, but Nichols said he never bothered to open them — conduct that Snow as head of the government’s financial literacy campaign would certainly frown upon.
Treasury ethics officer Kenneth Schmalzbach ruled that Snow’s holdings did not constitute a conflict of interest, but he did recommend Snow sell the mortgage bonds to avoid even the appearance of one.
To be sure, Snow asked the Treasury Department’s independent general counsel in a letter to conduct his own review of the holdings to determine if there was any conflict of interest.
Snow said in the letter released by Treasury that he was making the request to demonstrate “my commitment to the highest standards of ethical conduct for myself and the department.”
Treasury also released Snow’s 34-page financial disclosure form. It estimates he was worth between $43 million and $128 million last year.
This may be something else Snow will want to take up with his financial adviser since these amounts were well below the ranges for the previous year. He had assets worth between $77 million and $295 million, according to his financial disclosure form for 2002.
Assets only have to be reported in broad ranges.
According to his latest financial disclosure form, Snow, who led CSX Corp. for 14 years, received CSX-related income of $72.2 million last year, with $33.2 million of that in a special retirement pension.
Snow relied on an investment adviser to restructure his portfolio to avoid any conflict of interest with his holdings and his new job as treasury secretary, Nichols said.
Snow succeeded Paul O’Neill, who was fired in December 2002 in a shake-up of the administration’s economic team. He promised during his Senate confirmation hearings to sell his extensive stock holdings in CSX and 60 other companies to avoid conflicts of interest in his Cabinet post.
Nichols said the mix-up had not changed the administration’s position on Fannie Mae and the other big mortgage players.
The administration supports legislation to create a new federal regulatory body to monitor the companies in an effort to increase oversight. But it opposes one portion of a measure that has cleared the Senate Banking Committee because it would allow Congress to overrule a decision by the new regulatory body to take over the companies if they got into serious financial trouble.