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NY Lawyer Charges RI Pension Investments Tied to New SEC Complaint

Monday, December 09, 2013


A complaint filed earlier this year pertaining to private equity firms' transaction fees has direct ties to Rhode Island's pension investments, according to whistleblower lawyer Jordan Thomas.

A whistleblower's attorney in New York alleges that a Securities and Exchange complaint filed earlier this year "undoubtedly" has ties to Rhode Island private equity pension investments.

One of the private equity firms utilized by the state is Point Judith Capital, the former firm of Rhode Island General Treasurer Gina Raimondo which manages over $5 million in the state's pension fund assets.  

Private Equity Under Fire

Complaints have been recently filed with the SEC by former SEC investigator and Forbes columnist Edward Siedle, who in October released his findings into a months long investigation into Rhode Island's employee retirement system, as well as State Senator Frank Ciccone with regard to Rhode Island's pension investments.   

Last week, however, Crains New York was among the first to report that an unnamed whistleblower filed a complaint with the SEC earlier this year contending that private equity firms are violating federal securities law because they are acting as unlicensed brokers when they collect transaction fees.

GoLocal spoke with the whistleblower's attorney, Jordan Thomas with the New York law firm Labaton Sucharow, who said while he couldn't disclose his client -- or the private equity firms identified,  there was "no doubt" that firms with ties to Rhode Island's investments were named in the complaint.  

"The complaint involves a number of the largest private equity firms in the country," said Thomas, Chair of Labaton Sucharow's Whistleblower Representation practice. "What I can tell you is that some of Rhode Island's institutional investments are undoubtedly tied to firms named in the complaint."

Crain's Aaron Elstein reported that nationally, "In the past 10 years, private-equity firms have collected $2 billion in transaction fees, which essentially are bonuses the firms take for conducting their business of buying, managing and selling companies" -- and that private equity firms manage some $3.3 trillion for pension funds, endowments, and other institutions. 

New Addition to Calls for SEC Investigation

The revelation that private equity firms -- and ones that manage a portion of Rhode Island's pension investments -- could come under scrutiny by the SEC comes on the heels of Siedle's supplemental filing with the federal authority, following up on his initial filing in July calling for an investigation.  

Siedle told GoLocal, "My investigation conducted into Rhode Island's pensions was just a quick glimpse. There's a lot more going on there with private equity, including some serious potential violations of law, which this lawyer is confirming from his perspective."

"Now that there's another whistleblower, with no political connections to AFSCME, do all of these people have a political agenda?" asked Siedle. "It strains credibility that all of these people that are coming forward related to Rhode Island pension funds are somehow related to some vast political conspiracy. Clearly, we are not working in tandem, yet we're all raising grave questions here. "

In his letter to the SEC, Sieldle called on the commission to investigate "ERSRI's failure to disclose skyrocketing investment expenses," "ERSRI agreements with hedge funds allowing the state pension system to be kept in the dark, granting mystery investors licenses to state and consenting to potential nondisclosure illegalities," "ERSRI investment consultant conflicts and payments from money managers" and performance claims related to ERSRI's Point Judith Venture Investment."

Siedle wrote in a recent column for Forbes that he believed that alternative investments -- which include private equity -- would come under scrutiny, and specifically for their fiduciary duties to public pension clients. 

"Mark my words, the SEC will investigate whether hedge fund and alternative investment managers have been living up to the fiduciary duties they owe to their public pension clients. Specifically, have the managers placed their client’s interests ahead of their own and resolved conflicts of interest between the two in favor of the client; and have the managers fully and fairly disclosed all material facts to the clients." 


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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