Scandal's end: Prison

Here was the denouement to the Matthews and Wright story. Two years after we broke the story and explained the scam, court evidence confirmed our reporting as it sent the Wall Street firm's principal protagonist to prison.






BOND-FRAUD SCANDAL'S LATEST CHAPTER: PRISON

By Howard Goodman
Inquirer Staff Writer


To Moshe Lichtman, a developer who tried in 1986 to bring a major trash
resource-recovery plant to the ailing city of Chester , the attitude of
Matthews & Wright Inc.'s municipal- bond chief Arthur Abba Goldberg
was best expressed when Goldberg jokingly described a bond issue the
firm had underwritten in Guam as "selling bonds to the cannibals. "

"Lichtman thought this to be ironic," reads a recently released FBI
report, "because Goldberg had food dripping out of his mouth when he
said it. "

Exploitation, racism and gluttony - the themes surge through the
evidence amassed by prosecutors in the Goldberg case, which came to its
probable end on Monday with the one-time Wall Street wunderkind
sentenced to 18 months in federal prison and ordered to pay $400,000 in
fines and restitution.

The sentence, by U.S. District Judge Jesse W. Curtis Jr. in Los
Angeles, came two months after Goldberg pleaded guilty to three counts
of mail fraud for playing the key role in a bond -fraud scandal that
rocked the financial industry when it came to light in 1987.

With a breathtaking appetite, the evidence shows, Goldberg lured some
of America's poorest communities into the municipal- bond business to
make huge sums of money for his firm, never caring whether the trash
plants or housing projects that the bonds were supposed to finance were
ever actually built.

Swindle in the South Pacific

Here's what the golden age of investigative reporting was like at the Philadelphia Inquirer: To pursue the Matthews and Wright municipal bond story, the paper sent me to Guam, Saipan and Palau. I traveled that far to collect color, background and documents on the firm's actions before it turned its attention to Pennsylvania.
A lot of miles and expense, and the paper was content to run only a fraction of what I found.

Amazing.

Inquirer gets indictments!

Well, that's how William Randolph Hearst might have headlined it.

Before the year was out, we saw our reporting validated with these indictments.

Eventually, these charges would be matched by others involving East St. Louis bonds. Goldberg would be sentenced to 18 months in jail and the disgraced firm Matthews & Wright was fined $1 million and ordered to pay $7 million into a community fund for the impoverished Mississippi River city.

A billion here, a billion there; Uncovering a huge bond scandal

By following the threads of a suspicious municipal bond issue in the dirt-poor city of Chester, Pa., I discovered something amazing: A fraud that stretched all across America and into the Pacific territories, as a group of Wall Street wheeler-dealers used an income-tax loophole and phony promises to poverty-stricken communities to make themselves rich.With the Inquirer allowing me to investigate the story at length, and teaming me with business-reporter partner Barbara Demick and genius investigations editor Jonathan Neumann, we wrote a series of stories that led to big results: the Wall Street firm's demise and its principal officer's indictment and jail term. The federal investigator on the case told us he used this story as "his roadmap" to show other investigators what to dig for.Amazingly, we had this story to ourselves for months, our only competition being the industry newspaper, The Bond Buyer. In the day of Boesky and Milken, the Wall Street Journal didn't touch this huge scandal until indictments were at hand.

The Inquirer nominated these stories for the Pulitzer. We didn't win (another Inquirer investigation did), but Editor Gene Roberts told me this series was his favorite of the paper's entries that year -- and that remark is an honor I continue to treasure.

(click on image to enlarge)

A trash deal for Chester, Pa., that smells

Assigned to cover the Delaware County suburbs, I immediately was intrigued by the poorest town in the area, Chester - and the incongruous news that this impoverished had somehow issued $335 million in municipal bonds. I understood nothing about finance. But even given the usual incomprehensibility of these things, this marriage of a poor, majority-black city and Wall Street just made no sense to me.

I soon learned that a city attorney had received a $335,000 commission for doing, he admitted, very little work. That was a Page 1 story.

My editors kept encouraging me to keep digging. I soon came up with this Page 1'er.

And then much more.