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Monday, May 11, 2009

Anti-Social Investment Watch: Half Moon Bay Mulls Issue of 'Vampire Bonds'

Posted By on Mon, May 11, 2009 at 3:15 PM

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So-called social investing -- where soft-edged sharpies stay out of tobacco, blood diamonds, and the like -- has come under fire for producing substandard returns. Such critiques of do-well-by-doing-good investment-picking carry the implicit moral that one might do better by doing bad.

Into the the promising field of anti-social investment offerings steps the city of Half Moon Bay, a municipality 30 miles south of here. The city's manager recently told the publication Bond Buyer that it has obtained approval to sell $18 million worth of municipal debt -- which we term vampire bonds -- designed to pay off an apparently bloodsucking Woodside land speculator who has crippled a small town by simply purchasing land nearby, then going to court. The speculator, Charles Keenan, bought a piece of land outside town in 1993 for $1 million, and subsequently claimed Half Moon Bay had nine years earlier harmed the land's value by constructing storm drain improvements. The drain work created swampy conditions on part of the land, meaning it qualified as a "wetlands" -- so environmental laws kept Keenan from building a subdivision there.

Keenan in 2007 obtained a $36.8 million award from a San Francisco federal judge, who said the city had harmed Keenan financially by performing sewer work for a previous owner. The town threatened bankruptcy, and subsequent negotiations cut the award by half. Now, the Bond Buyer reports, the city has obtained approval to sell $18 million in judgment obligation bonds. Half Moon Bay's city manager is now mulling whether he must use that borrowing authority, or obtain cheaper loans from the state.

For anti-social investors, such an issue would create a golden opportunity -- by allowing them to send money in the direction of a speculator whose machinations have threatened to bleed a small town to death.

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Matt Smith

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