Joseph C. Salema

In 1990, Mark Fitterman, the Associate Director of the U.S. Securities and Exchange Commission's Market Regulation division, led the investigation into whether the Merrill Lynch investment bank took part in an illegal pay to play scheme in the sale of $2.9 billion in New Jersey Turnpike bonds.[1] In the sale of such bonds, it is considered advantageous for an investment bank to attain the lead manager mandate, as these banks customarily keep 50% of all underwriting fees.[1]

It is during the prospective sale of these bonds (in February 1990) that Armacon Securities' cash holdings increased from $4,600 to $412,000; Armacon's assets skyrocketed from $10,100 to $665,577 and their net capital increased in similar fashion from $8,100 to $395,710.[1] Armacon Securities prospered greatly while performing extremely little underwriting during this period. In 1991, the following year, Armacon took in $727,800 in underwriting fees, while its total operating expenses were less than $50,000. The firm operated without any staff to sell the bonds, no clients to buy the bonds and very little capital with which to finance an inventory.[2]

In the three years that Joseph Salema served as the Governor's Chief of Staff, Armacon Securities received over one million dollars in underwriting fees while lacking the necessities a firm would require to operate as an underwriter.[2]

In 1993, Armacon Securities became a familiar name in the daily news media. Journalists became increasingly aware that a chief aide to the Governor of New Jersey was a partner in a firm that was managing to post robust returns while remaining virtually inactive.[2] By May 1993, Joseph Salema willingly resigned amid growing public sentiment that he had inappropriately made use of his position to funnel cash and assets into his firm.[3] Salema and his legal representation denied being the subject of the federal inquiry, claiming the resignation was a measure to spare Governor James Florio further political embarrassment.[2]