A Texas financial adviser who helped the Tucson Unified School District with its $235 million bond issue is now working with federal officials investigating a public-corruption case in El Paso.
Hector Zavaleta also resigned this week as vice president of First Southwest Co., one of the largest financial services firms in the country.
Beginning in 2003, Zavaleta worked closely with TUSD to help pass its 2004 bond issue and later secured low interest rates on the bonds, achieved substantial savings through refinancing and generally kept the governing board informed on bond-related activity. He often traveled to Tucson for meetings with TUSD's governing board and the bond fiscal oversight committee.
Though TUSD still has a contract with First Southwest, two weeks ago Superintendent Roger Pfeuffer and Finance Director Pat Beatty hired a new financial-advising company to oversee the 2004 bond. TUSD soon plans to issue $47 million in bonds to continue school improvement projects.
A fax from Zavaleta's attorney, Randolph J. Ortega, said the former financial adviser has been cooperating with federal investigators "for some time."
"Naturally, his cooperation has served to move the investigation forward," the brief statement said.
Zavaleta informed Pfeuffer of the investigation, according to TUSD spokeswoman Chyrl Hill Lander, and volunteered to "step aside" from the contract and allow another financial adviser from First Southwest to oversee the bond plans. However, TUSD officials and attorneys said it was in their best interest to disassociate themselves from First Southwest while the investigation in El Paso continues.
First Southwest is not under investigation, but the company is mentioned in a federal guilty plea as refusing to pay a bribe to keep its financial-advising contract with El Paso County.
Hill Feinberg, chairman and CEO of First Southwest, said Zavaleta's resignation was shocking.
"We can't frame or know when Hector was contacted by the FBI," Feinberg said.
The same guilty plea alleges a representative of Bear Stearns, First Southwest's partner as a financial underwriter in both Tucson and El Paso, was aware of First Southwest's refusal and discussed with elected officials stripping First Southwest of its county contract.
Feinberg and Jack Addams, managing director and head of public finance for First Southwest, have maintained the company is a victim in the corruption case.
"Our reputation and integrity are very important to us," Feinberg said. "As of this date, we've not received notification that we're a target. We've not received a request for information or documents from the U.S. Attorney's Office, and we've received no subpoena for information."
They also said they were disappointed the investigation in El Paso prompted TUSD to seek another financial adviser.
TUSD officials were familiar with Zavaleta and praised him for his work.
"Hector was our person," governing board member Judy Burns said. "He was always the agent we saw at presentations and board meetings."
Now, Stone & Youngberg, LLC, a California-based financial advising company with clients across the country, will assist TUSD with its upcoming bond issuance and a possible 2008 budget override. The company has been contracted for $35,000, Lander said. TUSD has also replaced Bear Stearns with new financial underwriters.