A-3. Leading 25 managing underwriters of municipal issues, 1970. A-4. Leading 25 managing underwriters of corporate issues, 1970- A-5. Leading managing underwriters of municipal and corporate issues, A-7. Rankings of underwriting firms on basis of total dollar amount of public offerings of taxable securities managed or comanaged................ A-8. Letter from Hon. Morris K. Udall and Hon. David N. Henderson to President Richard Nixon recommending high ethical standards for LETTER OF TRANSMITTAL U.S. HOUSE OF REPRESENTATIVES, OF THE COMMITTEE ON POST OFFICE AND CIVIL SERVICE, Hon. THADDEUS J. DULSKI, Chairman, Committee on Post Office and Civil Service, U.S. House of Representatives, Washington, D.C. 20515 DEAR MR. CHAIRMAN: In August, just before the Congressional recess, I advised you of my concern regarding developments relating to the proposed issuance of bonds by the United States Postal Service and of my intention to make some preliminary investigations into this area during the August recess. With your permission and cooperation we arranged for a General Accounting Office employee to be detailed to assist the Subcommittee. Mr. Robert Schremp, an experienced auditor from the GAO (who was with the Banking and Currency Committee on a similar assignment for some six years), joined the Subcommittee staff on assignment and has been of great assistance. In addition, we arranged for a special consultant to assist in the preparation of the staff report. Mr. John Nash, a six year staff member of the Investment Bankers Association and more recently a private consultant, assisted the Subcommittee during this period. In addition, I spent some time directly involved in the investigation and analysis, including a trip on August 12 to New York City, during which time we spent a full day interviewing leaders in the investment banking community as well as conferring with top officials of the Federal Reserve Bank of New York. Based on this intensive investigation and analysis, a preliminary study has been prepared by the staff. Based on my own considerations and those of the staff I have reached certain conclusions and offer certain recommendations to you and the Subcommittee. Introduction The Postal Reorganization Act of 1970 (PL 91-375) completely restructured the Postal Service of the United States, replacing a Cabinet level department with an independent agency of government. The agency is run by a Board of Governors appointed by the President with the advice and consent of the Senate and it has wide ranging authority to efficiently and economically move the mail of the United States. As a part of that authority the agency may issue revenue bonds for purposes largely related to capital expenditures and Congress gave the agency great flexibility in the management of this authority. The bonds may total $10 billion outstanding at any one time and may either be sold directly to the Treasury of the United States or upon the open market. In addition, the bonds may or may not be guaranteed by the full faith and credit of the United States. If the guarantee of the United States is not attached to specific issues of the bonds, there is an implicit guarantee that the revenues of the Postal Service will be sufficient to meet all interest and principal costs at maturity. While the Postal Service agency was not activated until July 1, 1971, much preliminary planning went on in late 1970 and early 1971 looking forward to the new status. In the fall of 1970 and in early 1971 the Postmaster General and his principal assistants made public their intention to use the financing authority and the bonding authority, and indicated that an initial issue of some $250 million in bonds would be tried sometime in the fall of 1971. The Postmaster General and his staff-in making this crucial step into the financial market-had several major decisions to make: 1. Should the bonds be sold directly to the Treasury or to the public utilizing the open market of Wall Street? The Postal Service decided that they would sell the bonds to the open market utilizing the investment banking industry. 2. Should the bonds be guaranteed by the United States or carry no such guarantees? The decision was that these bonds would carry no guarantees. 3. If the decision was to go to the open market, (it was), should the underwriters be selected through private negotiations or through some type of competitive bidding? It was decided that the Postal Service would negotiate with a variety of investment bankers and then decide, based on those negotiations, which firms would be the underwriters. 4. If a negotiated arrangement was decided upon, which of the several dozen major underwriting firms should be selected and under what terms and conditions? The Postal Service selected five investment banking firms, through a negotiated process and many questions have been raised about their selection. These will be discussed in greater detail in this letter and in the attached report. (Details on this subject can be found in Part II of the attached report.) Because of the very large amounts of public money involved and because of the important precedents to be set it was important that each of these four major questions be answered carefully and wisely. It was also vitally important, in view of the history of the old Post Office Department and the great difficulty in enacting the Postal Reform bill, and the huge sums of money involved, that these first actions be most carefully handled so as to avoid at all costs any appearance or suggestion of impropriety. Based on my investigation I have reached two principal conclusions: 1) this important bond issue has been handled in such a way that the strong appearance of impropriety has arisen; and 2) that the method chosen for this financing may eventually and unnecessarily cost the taxpayers and the Postal Service large sums of money. I am recommending to you and the Committee that we take appropriate action to correct the mistakes of the Postal Service and that preventive measures be adopted to insure against similar errors in the future. The following report will include some suggestions as to possible changes in the Postal Reorganization Act so as to create a financing system that will be of greater benefit to both the Postal Service and the general public. (Details on this subject can be found in Part III of the attached report.),, |