The use of letters of credit (L/Cs) to secure publicly traded bonds is an established practice in some markets and banks that issue L/Cs on this basis expect transparent financial information from the companies that issue the bonds.

An investigation begun recently in the US state of Louisiana however suggests that caution should be exercised when assessing financial information provided by organisations seeking security though documentary credits.

Legal opinion

According to the American Press of Lake Charles (AP), the FBI has started to investigate the Port of Lake Charles authorities in response to matters raised in a legal opinion issued by the port's attorney.

Mike Dees, the attorney for the Lake Charles Dock Board, apparently wrote on 19 February that the port was in breach of federal laws when executives used non-existent revenue figures in the port's budget records.

These records were then apparently sent to a New York bank that issued the L/Cs that secure the port's bonds.

Financial concerns

A senior FBI agent is reported in local media as saying he could neither confirm nor deny that an investigation was taking place but AP, citing unidentified sources close to the port, reports that investigators have already interrogated several people in this matter and that a subpoena is being prepared for the port records.

In the last few weeks, two members of the Dock Board have resigned, apparently over their concerns over the ports finances.

Irregularities

The budget irregularities apparently centre on port management's inclusion in its 2002 and 2003 budgets of more than US$2 million in nonexistent income from Citgo and ConocoPhillips related to overtime billings.

Port management sent that report to the bank holding the port's documentary credit which secures US$20 million in publicly traded bonds of the port, according to Dees' opinion.

Failure to negotiate

"Revenue and expense reports were misleading. The act of conveying this misleading financial information violates Federal Securities & Exchange Commission laws and regulations," according to Dees' opinion.

The port has lost millions of US dollars of revenue by failing over many years to renegotiate contracts with Citgo and ConocoPhillips regarding overtime rates, Dees wrote in the opinion.

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