Suzanne Shank and Sean Werdlow (Christine M.J. Hathaway)
Detroit — The city’s bankruptcy team demanded answers Thursday about how a former Kwame Kilpatrick appointee who helped engineer an infamous $1.4 billion pension deal left to join a bank that profited from the transaction.
City lawyers subpoenaed Wall Street bank Siebert Brandford Shank & Co., which was involved in a 2005 pension deal blamed for helping push Detroit into bankruptcy. The firm was founded by banker Suzanne Shank, who recently bought a 6,000-square-foot, multimillion-dollar home with Kilpatrick’s former finance chief, Sean Werdlow.
The city subpoenaed “documents concerning the employment of Sean Werdlow, including without limitation documents showing communications and negotiations about the terms of and circumstances surrounding his employment.”
Werdlow was the deal’s architect who resigned in November 2005 and joined SBS Financial Products Co., which according to a lawsuit filed by the city was one of the municipal investment banks that helped engineer the pension deal. SBS was created by Shank’s bank.
The subpoena is the latest move by Detroit’s legal team, which contends the pension deal was illegal. The deal is one obstacle in the city’s path out of bankruptcy court and will play a starring role in a mid-August trial over the city’s bankruptcy restructuring plan.
A Siebert spokesman declined comment, saying executives had not been served with the subpoena as of Thursday afternoon.
The city also has subpoenaed Werdlow.
The Detroit News revealed in February that city lawyers wanted to question Werdlow about his relationship with Shank.
“The timing of Mr. Werdlow’s move ... raises questions,” Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, told The News in February. “This is not a suggestion of any wrongdoing.”
In February, Werdlow called questions about his relationship with Shank — and his departure from City Hall — a “low blow and cheap shot” and said the public is looking for a scapegoat in light of the failed pension deal.
He defended the deal, saying it was vetted by City Council, the city’s pension funds and lawyers. SBS was one of 12 banks involved in the deal, he said.
He also told The News he had been dating Shank for a year and they had been open about their relationship.
“Going back to 2005: She was married at the time and so was I,” Werdlow said. “It was nothing but a professional relationship. It’s not like we’ve been carrying around some scandalous secret here.”
Nowling did not immediately respond to a request for comment Thursday.
In 2005, Detroit borrowed $1.44 billion from investors through a financial note called “certificates of participation,” or COPs. The deal was designed to pour money into the city’s two pension funds.
The pension debt was made more complex by an interest rate swaps deal layered on top of $800 million of the debt. The city traded a variable interest rate for a fixed rate.
The swaps initially gave Detroit lower borrowing costs.
But when prevailing interest rates plummeted in 2008-09, Detroit’s annual payment ballooned from an estimated $5 million a year to $50 million.