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Siedle: St. Joseph’s Pension Fund Bankruptcy Shows RI Needs AG Who Knows Pensions

Sunday, August 20, 2017


Rhode Island Attorney General Peter Kilmartin

As the collapse of the St. Joseph's pension fund (which was approved by current Rhode Island Attorney General Kilmartin) illustrates, any candidate for the position must have a knowledge of pensions -- and be prepared to act.  

Moreover, Rhode Island needs an Attorney General who is willing to investigate the largest financial crime in the history of the state: a reckless gamble of over $1 billion in state pension assets to further the political fortunes of the then-Treasurer, now Governor, and her Wall Street backers. In its first five years, this roll-of-the-dice has already resulted in approximately $500 million in hedge fund losses alone.

When politicians who oversee state pension assets blithely ignore the dire warnings of credible experts (including legendary investor Warren Buffett) and undermine the retirement security of state workers by causing massive losses, they should be held accountable by taxpayers for their intentional wrongdoing.

Rhode Island’s costly pension train wreck was foreseeable, indeed foreseen. Don’t think for a minute the damage to date was unavoidable or that the losses are behind us. If the best interests of state workers and taxpayers had been paramount, pension assets would never have been put at extreme risk and the state would be far richer than it is today.   

To restore the public trust, as well as potentially recover ill-gotten gains, taxpayers should demand a relentless investigation into the wreckage at the pension. 

Whether a Republican, Democrat, Green Party or Independent, the new Attorney General as the state’s top legal official must have the skills and be prepared to fight corruption at the highest levels involving billions of pension dollars.   

Edward Siedle is a former U.S. Securities and Exchange Commission lawyer who currently writes for Forbes, and is currently in line to receive the biggest whistleblower award in SEC history. 


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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"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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"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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"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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"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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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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