Controversy roils on over who will handle giant muni bond sale.

Los Angeles Mayor Tom Bradley last week effectively blessed a report recommending that a Wall Street brokerage -- rather than a California-based, African-American-owned firm -- underwrite the largest municipal bond refinancing in the nation's history.

The mayor's action goes counter to a 10-1 vote by the L.A. Convention and Exhibition Center Authority awarding a convention bond contract to San Francisco-based Grigsby Brandford & Co., an African-American-owned firm. City staff recommended Goldman Sachs & Co. for the deal.

"The mayor received the report from the city's chief administrative officer and has referred it without comment to council," said Kathy Mendenhall, assistant to the mayor. "He did not make changes."

A spokeswoman for Mayor-elect Richard Riordan, a former venture capitalist, said he would be "looking into the matter" after he takes office July 1.

The controversy over which firm should get the lucrative contract to be in charge of selling the estimated $500 million convention center bond refinancing prompted at least one competing firm, San Francisco-based Bank of America, to withdraw from the competition, charging that lobbyists influenced the vote.

The controversy centers around a May 12 decision by convention authority members to reject city recommendations to select Goldman Sachs to be in charge of a group marketing the bonds. Instead, commission members decided to select Grigsby Brandford to be in charge and tapped Goldman Sachs and New York brokerage PaineWebber Inc. as top assistants to Grigsby in selling the issue.

Because the bond issue is so large, a team of investment banking firms is needed to help sell the bonds. The controversy is over which firm, Grigsby or Goldman, will be in charge of the team.

The refinancing is expected to save the convention center money by pooling existing convention bonds that pay higher interest rates and reselling them to take advantage of today's lower interest rates.

After the selection, Bank of America decided to completely withdraw from the process, charging that lobbyists for certain firms had poisoned the process.

Steven Silberman, a convention commissioner, said he received many calls from people he thought were lobbyists, but he didn't return calls. Silberman said he voted for Grigsby because he wanted the city to send a signal by letting a minority-owned firm sell the historic deal.

The City Council finance committee is tentatively slated to decide June 15 whether to accept the report and give those recommendations to the City Council, or recommend that Grigsby underwrite the issue.

At the mayor's request, the report was prepared by the chief administrative officer's staff looking into why convention center authority members voted for Grigsby Brandford.

The report recommends that the City Council approve the underwriting team as recommended by the city and refer the matter back to the convention center board for review. The board and the City Council must be in agreement for a team to be selected, a city attorney said.

"A thorough review ... and analysis indicates that the review committee's recommendations continue to be in the city's best financial interests and we therefore have no basis to recommend a change in the proposed team," the report said.

Bank of America, in its letter bowing out of the deal, said the bond issue should be sold competitively rather than negotiated.

However, the report concludes that it is still in the city's best interest to sell the bonds on a negotiated basis.

The role of political contributions and lobbyists in the municipal bond market has attracted recent attention from regulatory agencies. Much of the concern was prompted by a federal investigation this year into a $2.9 billion bond issue sold by the New Jersey Turnpike authority after charges that political favors were involved in the selection of bond underwriters.

The Securities and Exchange Commission announced last week that it is asking municipal bond underwriting firms to give detailed information on political contributions made to state and local officials.

"At this point we're getting information on political contributions at the state and local level. We're not looking into lobbyists as much," said Mary Schapiro, acting chairman of the SEC, who would not specifically comment on the convention center controversy, although she said it "sounds interesting."

In a June 4 letter to underwriters, the SEC asked firms to voluntarily provide details by July 12 on political contributions made since Jan. 1, 1990.