INVESTIGATION: Raimondo Gives State Contracts to Campaign Donors
Thursday, August 09, 2012
“If any of the individuals in those firms had given money and the money was more than the de minimis of $350, she should not be doing work with any of these firms,” said URI business professor Ed Mazze. “There would be the feeling that these firms ‘paid to play.’”
In the year and a half since the election, the Rhode Island State Investment Commission—an arm of her office which Raimondo chairs—has hired a major New York-based bank to manage an estimated $8 billion in pension funds and cash assets for the state. Another contract was issued to another top bank to handle half a billion dollars in liquid assets. And, the commission has held direct votes to make investments of up to $75 million in four separate firms.
All six banks or firms contributed to Raimondo’s campaign through their managers or employees, collectively amounting to $5,849, according to state campaign finance records. In particular:
■ $10 Million investment: Last September, the investment commission voted to invest $10 million in Braemar Energy Ventures III. State records show that in 2010 one of the partners at Braemar Energy Ventures contributed $1,000, the maximum allowable by state law.
■ $20 Million investment: At that same meeting, the commission invested $20 million in the Summit Partners Credit Fund. A senior advisor at Summit Partners contributed $2,000 total between 2009 and 2010.
■ $500 Million state investment pool: Last November, the commission selected Fidelity Investments to manage the Ocean State Investment Pool, a new venture initiated by Raimondo. The pool was expected to have up to $500 million in liquid assets from the state and cities and towns. Contributions from Fidelity employees: $2,050.
■ Bank for $8 billion in state assets: Last month, the General Treasurer’s office announced that BNY Mellon has been selected to provide “master custody banking services” for state assets worth about $8 billion, which includes pension funds and cash assets, according to a press release. BNY Mellon employee contributions: $350.
Raimondo was present at all the meetings where decisions on those investments and contracts were made and she did not recuse herself from the votes, with the potential exception of BNY Mellon. (Those minutes have yet to be published and her spokeswoman yesterday would not say whether Raimondo had attended the meeting or recused herself.)
Notably, two other members of the investment commission recused themselves from the votes. On Feb. 27, 2012, commission member Rosemary Booth Gallogly, who is the state revenue director, recused herself from the vote to invest $25 million in Centerbridge. She did not give a reason, at least according to the minutes, but her brother, Mark Gallogly is the cofounder and managing principal of Centerbridge Partners. He is also the source of the $249 donation to Raimondo’s campaign.
A second commission member, newly appointed Paula McNamara, abstained from the Nov. 23, 2011 vote on the Fidelity contract. McNamara held the post of Senior Director of Client Services Development for Fidelity at the time of her appointment last year.
Conceivably, Raimondo also could have mitigated any potential pay-to-play issues by returning the campaign contributions, but as of this week, that had not been done. (Mazze, however, doubts that returning donations would actually accomplish that much, saying the “damage has been done.”)
‘Here we go again’
Mazze said Raimondo and the companies could face issues of how the donations will be perceived. “If it looks like garbage and it smells like garbage, there’s a high probability that it’s garbage,” Mazze said. “In other words, you don’t do business when there is a perception you paid to do business.”
He noted that since the votes were all unanimous, Raimondo could have easily recused herself without endangering the deals.
Zaccaria said the perception that is left with voters will not be a positive one, increasing public disillusionment with state politics and perpetuating a trend towards low turnout in elections. “The point is, it’s a ‘here we go again’ moment,” Zaccaria said.
“All these things bear watching,” added Margaret Kane, president of Operation Clean Government, who said she would need more information before she could determine whether the donations—and the ensuring contracts—constituted cases of pay to play. “I think it’s worth looking into,” Kane concluded.
Raimondo: I will hold myself to a higher standard
‘Pay to play’ is defined by Common Cause, a good government group, as the exchange of money or even gifts—such as Super Bowl tickets—in return for political favors.
It’s a not uncommon practice, but proving that donations are being made with the express intent that favors will be repaid can be difficult, as the U.S. Securities and Exchange Commission noted two years ago, when it released a set of rules aimed at curbing the practice in the world of public pension funds.
Raimondo’s predecessor, Frank Caprio, was caught in a pay-to-play flap in 2008 when $23,000 flowed in from two New York law firms—five days after he announced his office was issuing an RFP for securities-litigation law firms. After the contributions became public, Caprio returned the money, even as his campaign insisted that it had not sought the donations.
When she ran for office, Raimondo went out of her way to make an issue out of pay-to-play donations. In June 2010, her campaign announced that she would abide by proposed SEC rules barring individual “investment advisers” who contributed more than $350 from receiving an investment from a pension fund managed by the candidate, if elected. The ban would have been effective for two years from the date of the donation.
Raimondo issued a press release announcing her voluntary compliance with the rule and she urged its speedy passage. She followed up with a letter to the editor in which she declared that, “It’s time that we held all public officials and candidates—myself included—to a higher standard to protect the interests of taxpayers and ensure performance in our state government.”
The SEC eventually adopted the rules, although implementation is not yet complete.
Donors’ bank will be handling state pension funds
BNY Mellon, the state’s new custodial bank, would be involved in pension funds, according to a press release from the General Treasurer’s office. However, banks are exempt from the SEC rule because they are not considered investment advisers (even if they happen to give investment advice).
The situation nonetheless raises the larger question of why Raimondo’s self-imposed rule against conflicts of interest with investment advisers who make political contributions would not apply more broadly to similar conflicts involving any other kind of individual or institution doing business with her office. That question went unanswered by Raimondo’s office yesterday.
“It just makes it that worse,” said Zaccaria.
Before BNY Mellon, State Street provided custodial banking services to the state government. State campaign finance records do not show any donations from State Street employees to Raimondo’s campaign.
Six months after taking office, Raimondo said her office would be issuing an RFP for a new custodial contract. At a later meeting of the investment commission, she said the last RFP was in 2000 and that “whenever a contract expires an RFP should be conducted to ensure competitive pricing and top-notch services,” according to the minutes for the April 25, 2012 meeting.
Spokeswoman: ‘Treasurer’s integrity is not for sale’
Instead, in e-mailed comments, Fox stressed that the new contract would be saving the state $300,000 annually, but she did not disclose, when asked, how much BNY Mellon would be making off of the deal.
“As previously reported by GoLocal in 2010, the Treasurer’s integrity is not for sale at any price. She governs based on merit and merit alone—her decisions are based on what is best for Rhode Island,” Fox said in her statement.
Fox was alluding to comments made by then-campaign manager Joseph Shekarchi, who is now running for state rep and is no longer affiliated with Raimondo’s campaign organization. He was responding to GoLocalProv’s finding that seven companies that had existing contracts with the Treasurer’s office had contributed $24,150 to Raimondo’s campaign by mid-2010. (East Providence-based accountant Ed Galvin is currently handling her campaign accounts. He did not return a call yesterday.)
“From pension reform that saves Rhode Island about $4 billion in the next 20 years to saving the state over $7 million in its recent bond offering, the Treasurer’s record speaks for itself,” Fox added.
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