REPORT: RI Public Pension Reform - Wall Street’s License to Steal

Friday, October 18, 2013

GolocalProv News Team

 

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Former SEC Investigator and Forbes columnist Ted Siedle unveiled a 100 plus page report that calls for a federal investigation regarding a number of issues relating the "withholding of material information and misrepresentations regarding state pension costs, as opposed to a lack of knowledge about the exponential growth and magnitude of the fees (tied to Wall Street Hedge Funds)."

The report entitled, "Rhode Island Public Pension Reform: Wall Street's License to Steal" secured by GoLocal, charges that the investment strategy led by Rhode Island General Treasurer Gina Raimondo (D), is a "lose-lose: alternative investments both reduce returns and increase risk."

READ THE SLIDES BELOW OF THE MAJOR FINDINGS AND SEE THE FULL REPORT BELOW

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Siedle was hired by AFSCME three months ago to review the Employee Retirement System of Rhode Island. The report alleges a number of failures of oversight, illegalities tied to nondisclosure and heightened risk as a result of the policies and investment strategies developed by Raimondo.

Siedle's work was developed by his company Benchmark Financial Services, which has conducted other investigations in other cities and states, and with private pension funds, including the State of Alabama Personnel Board; Fairfield County, Connecticut; Cities of Nashville, Chattanooga and Burlington, Vermont; and Orange County Sheriff’s Office.

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Siedle on most critical findings of the report

Siedle says that one of the most disturbing findings, from a regulatory and public policy perspective, is that the General Treasurer’s practice of withholding information and intentionally providing incomplete disclosures regarding ERSRI’s investments results in: (1) misleading the public as to fundamental investment matters, such as the true costs and risks related to investing in hedge, private equity, and venture capital funds; (2) understating the investment expenses and risks related to ERSRI; and (3) misrepresenting the financial condition of the state of Rhode Island to investors. 

READ THE FULL REPORT

 

 

Rhode Island Public Pension Reform-Wall Street's License to Steal

 

Related Slideshow: RI Public Pension Reform: Wall Street’s License To Steal

See the key findings from Forbes' columnist Edward Siedle, who unveiled his investigative report into the RI pension system, "License to Steal," in October 2013.  

"The Employee Retirement System of Rhode Island has secretly agreed to permit hedge fund managers to keep the state pension in the dark regarding how its assets are being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices," said Siedle.  

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Treasurer’s Lack of Transparency

 
"There has been a sinister pall of secrecy regarding fundamental investment information orchestrated by state officials and aided by key investment services providers. "
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So-Called Pension Reform Scheme Permanently Reduces Benefits To Retirees

"Whether retirees receive any COLA will depend upon both ERSRI’s funding level and the Fund’s actual investment returns—both of which are volatile, unpredictable and subject to manipulation by elected officials and others. The manipulation of both of these key goalposts has already begun. "

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SEC Should Investigate ERSRI’s Failure to Disclose Skyrocketing Investment Expenses 

 
"The Treasurer has intentionally withheld information about soaring investment fees which is material in assessing both whether ERSRI should invest in costly alternative investments and whether benefit cuts are necessary to improve pension funding."
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Lose-Lose: Alternative Investments Both Reduce Returns and Increase Risk 

 
"The Treasurer’s representations regarding the level of risk related to ERSRI’s hedge fund investments are wholly inconsistent with the hedge fund managers’own words."
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ERSRI Agrees To Be Kept In The Dark, Grants Mystery Investors Licenses to Steal and Consents To Potential Nondisclosure Illegalities 

 
"The outrageous nondisclosure policies detailed in the hedge fund offering documents cause these investments to be, at a minimum, inherently impermissible for a public pension, such as ERSRI, if not illegal."
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Heightened Risks Related To Hedge Fund Offshore Regulation And Custody

 
"There is no evidence the State Investment Commission was aware of, or ever considered, the unique risks related to foreign regulation of hedge funds."
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SEC Should Investigate Questions Surrounding ERSRI’s Point Judith Venture Investment

 
"The Treasurer has made numerous public statements regarding the performance of the Point Judith II fund she formerly managed and sold to ERSRI, as well as released summary performance figures which are strikingly divergent. [...] In order to prevent any possible confusion or misleading of investors, the SEC should investigate Point Judith II performance claims."
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Rhode Island Ethics Commission Opinion And “Blind Trust” Fail to Address Conflicts Regarding Point Judith Investment

 
"The Treasurer notably failed to mention in her letter to the Ethics Commission that the state was a limited partner in the Point Judith fund and may have broad rights in the fund that conflict with hers. Further, she may have special rights that permit her to profit at the state’s expense."
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SEC Should Investigate ERSRI Investment Consultant Conflicts, Payments From Money Managers

 
"The investment consultant retained to provide objective advice regarding alternatives, Cliffwater LLC, has disclosed in its SEC filings that it receives compensation from investment managers it recommends or selects for its clients, including Brown Brothers Harriman which manages $272 million for ERSRI."
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“Pay To Play” Placement Agent Abuses at ERSRI

 
"Rather than undertake an independent investigation in response to an SEC inquiry, ERSRI relied upon its then investment consultant, PCG, for objective advice regarding controversial placement agent fees—at a time when PCG itself was embroiled in a national pay-to-play scandal."
 

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