Jay Denton was fired as Sylva’s town manager Thursday (Sept. 4) following last month’s discovery that he illegally invested $2 million in town funds.

Denton was town manager for three years.

His termination was effective immediately and included a 30-day severance package totaling $6,194, according to Town Clerk Brandi Henson.

Last month during the town’s routine audit by Dixon Hughes of Asheville it was discovered that Denton had invested $2 million of the town’s funds illegally. Denton said he accidentally put the money into a CD and mutual fund that are not among those allowed by state statute.

“I made some mistakes in interpreting where I could put the funds,” Denton said.

Denton said his investment decisions were based on getting the best interest rates. The money that was invested illegally was a portion of the $3.5 million that the town got last year when it sold the development rights of the 1,100-acre Fisher Creek Watershed to the Clean Water Management Trust fund.

Denton said he took $3 million of the $3.5 million out of United Community Bank of Sylva in February and began investing it other places because the bank’s interest rate dropped from around 5 percent to 2 percent.

He said he needed to get a better interest rate because the town had budgeted for several projects assuming a 3 percent interest on the $3.5 million.

The town only uses the interest off the money, Commissioner Sarah Graham said.

To protect the public’s money, the state prohibits local governments from making risky investments, said Kara Millonzi, a professor of public law and government at the University of North Carolina Chapel Hill.

Therefore, towns can’t invest in things such as stocks or mutual funds and have to settle for safer, lower interest investments.

The security of the investment and liquidity (the ability to get funds out) is more important to the state than high interest, Millonzi said.

Denton also used his brother-in-law, a financial adviser for Wachovia Securities in Asheville, to handle the investments.

Town Commissioner Stacy Knotts said Denton’s using his brother-in-law was not illegal but not good “perception-wise.”

Sylva Mayor Brenda Oliver agreed that Denton’s using his brother-in-law was not illegal.

David Lawrence, a professor of public law and government at UNC Chapel Hill, confirmed that it was not illegal for Denton to use his brother-in-law to handle the investments. Lawrence said it is only illegal for a government official to do business with a family member when the government official will profit from it.

Also Lawrence said it is illegal for a government official to do business with his wife because they are “part of the same economic unit.”

The town lost no money because of Denton’s investments, and all the money has been moved to legal accounts, Denton said. In fact, Denton’s investments probably made the town more money because he secured good interest rates.

The town was able to keep the interest that was made off the illegal investments, Denton said.

Commissioner Graham said Denton should have used more caution investing the money.

“A simple phone call to the LGC (Local Government Commission) would have prevented this,” Graham said.

Denton agreed and recommends others in his position check with the LGC before investing money.

“Talk with the auditor about transactions to make sure you’re in the square,” he said.

Sylva Commissioners Maurice Moody, Knotts and Graham voted to terminate Denton while Harold Hensley and Ray Lewis voted to keep him.

Board members would not comment on why they voted the way they did, saying it was a private, personnel issue.

Denton said they told him they voted to terminate him because of the illegal investments and because of a city bridge he was in charge of getting installed being $100,000 over budget.

Denton made $53,694 as town manager, according to the town clerk’s office.

The illegal investments

Denton said he invested $2 million in February into a Goldman Sachs mutual fund not approved by the state. In July he moved $1 million out of the mutual fund and purchased a CD that was also not approved by the state, he said.

He said he moved $1 million out of the mutual fund to the CD to get better interest for the town.

Knotts said the Goldman Sachs mutual fund was too risky, but Denton said the money was safe.

“I would have never done anything to jeopardize funds,” he said.

The CD was illegal because it wasn’t fully insured, Knotts said.

“If the bottom would have fallen out of the market, the CD and mutual fund would have been at risk,” Knotts said. “It has to be a CD for public funds; it can’t be for brokerage funds. The CD didn’t meet the criteria.”

Denton’s investments made the town more interest, but more interest means more risk, Knotts said.

“The government shouldn’t be taking any type of investment risk with public funds,” Knotts said.

Commissioners: No evidence Denton intentionally broke laws

Knotts and Graham said they do not have any reason to believe Denton was trying to get money for himself or was intentionally breaking laws.

Graham said she thinks it was a matter of Denton having no “expertise in working with public funds.”

Denton said General Statute 159-30 outlines where funds can be invested.

He said he put money into an illegal mutual fund because he “misinterpreted” the statute.

“In haste I made a mistake transferring funds,” he said. “I thought I read the law correctly. I should have researched it more.”

Knotts would not comment on why she voted to terminate Denton but said at a personnel-finance meeting the day before, “I’m taking it very seriously these statutes were violated. Our number one interest is protecting the public’s money.”

Denton said as soon as he found out that the funds were in illegal investments he began taking steps to correct the situation, and now the money is in the legal North Carolina Capital Management Trust Fund.

Denton said he didn’t tell the board he was investing the funds but said the board should have known he was through the financial reports they received. He said in hindsight he should have told the board when he moved the money.

But he said the town manager may “invest funds as he sees fit” as long as it’s legal.

He said his assistant financial officer, Lynn Bryant, knew about his investing the funds.

Another investment

Denton also put another $1 million into a student loan bond program that, he said, makes 4.48 percent interest. That was a legal investment.

But Denton said the town is trying to get the money from the bonds transferred to the North Carolina Capital Management Trust Fund.

But he said the money cannot be accessed at this time, because the bonds did not sell at auction. He said he thinks the town will be able to get the money in October.

Used brother-in-law to invest funds

Denton said he used his brother-in-law, Robert Melton, a financial advisor at Wachovia Securities in Asheville, to handle the investments.

Denton said he contacted his brother-in-law at Wachovia to ask whom he could speak with at the bank about handling the investments, and his brother-in-law told him he handles those types of investments. Denton emphasized that he does not want his brother-in-law to be put in jeopardy over the incident.

Denton said he does not know if his brother-in-law made money off handling the investments, but he did say that the town did not pay his brother-in-law anything.

“My only interest was making interest for the town,” Denton said.

Denton said he contacted at least five bankers in February before deciding to use his brother-in-law.

He said his brother in law “just happens to be the financial adviser who does this out of Asheville.”

He added, “I have other relatives in banking, too.”

Moreover, Denton said he and his brother-in-law “don’t have the best relationship. We do Christmas dinner.”

He said the only connection between them is that “My wife happens to be his sister.”

Investment Policy

The commissioners are discussing the possibility of adopting an investment policy.

Denton said he thinks a policy is a good idea.

“Typically it will say how much diversification you want in funds,” he said. “You don’t want any more than 50 percent in one institution.”

The board has agreed to have a lawyer from Winston-Salem visit before the town board meeting in October to discuss developing the policy.

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