Siedle: RI State Pension Fiduciaries’ History Of Not Cooperating With SEC
Friday, March 10, 2017
In January 2014, the SEC's Public Pension Unit (a special unit within the SEC that focuses on public pensions) requested from then-Treasurer Raimondo documents related to the hiring of the pension's alternative investment consultant, as well as due diligence reports reviewed by the State Investment Commission when it considered investments in alternatives.
This SEC request was a mere two months after the findings of my firm's first forensic investigation of the state pension was filed with the SEC. As some readers may recall, this investigation, funded by Rhode Island AFSCME Council 94, was titled, Rhode Island Public Pension Reform: Wall Street's License to Steal.
Raimondo and the pension fiduciaries refused to provide the SEC with the information requested and current Treasurer, "Kid" Magaziner has continued Raimondo's flawed secrecy policy to this day.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTTranslation: Magaziner—like his predecessor Raimondo—continues to this day to refuse to disclose to the public documents regarding the pension’s secretive alternative investments and due diligence reports. It’s disappointing that Kid Magaziner hasn’t reconsidered his responses to public records requests in light of his highly-touted Transparent Treasury initiative, but hardly surprising.
It takes years for children to mature—some never do.
Likewise, it takes years for politicians to honor campaign promises—some never do.
However, the documents his office provided to me reveal something far more sinister: a history of refusing to provide information on controversial alternative investment dealings to the U.S. Securities and Exchange Commission.
According to the documents provided, in early 2014, then-Treasurer Raimondo stonewalled when the SEC asked for information regarding the pension's alternative investments claiming that the confidentiality agreements the State Investment Commission had entered into with Wall Street prohibited compliance with the requests of a federal regulator—even when specifically asked. Confidential information about these investments could not be provided, said Raimondo and disclosure of even non-confidential information to a regulator required notification to the funds targeted.
Promises of protection to Wall Street billionaires trumped the fiduciary duty to state workers and taxpayers, as well as any obligation to assist the nation’s premier financial regulator.
Let’s break this down.
First of all, it’s utter nonsense that the agreements with Wall Street precluded the State Investment Commission or Rhode Island Treasury from providing the information to regulators.
I’ve never seen an alternative investment confidentiality agreement that prohibits a state or local government workers’ pension from responding to regulatory requests for information and other compliance with law. Even if an agreement said such, it wouldn’t be enforceable as a matter of public policy.
Furthermore, had such a draconian agreement been proposed by Wall Street to the State Investment Commission, no competent fiduciary should have ever signed it. How can withholding information from a regulator ever be consider “in the best interest of pension participants”—the standard required of pension fiduciaries?
If such perverse agreements, requiring protection of potential wrongdoers from regulatory scrutiny do exist and were signed by the past or current Treasurer, then let’s see them. If Treasurer Magaziner can’t show pension stakeholders the documents, then at least show them the confidentiality provisions that supposedly prohibit disclosure of the documents. Is that too much to ask for? Of course, then he’d have to explain why he ever signed the absurd agreements in the first place.
What’s the backstory?
It seems that in January 2014, the SEC’s Public Pension Unit (a special unit within the SEC that focuses on public pensions) requested from then-Treasurer Raimondo documents related to the hiring of the pension’s alternative investment consultant, as well as due diligence reports reviewed by the State Investment Commission when it considered investments in alternatives.
This SEC request was a mere two months after the findings of my firm’s first forensic investigation of the state pension was filed with the SEC. As some readers may recall, this investigation, funded by Rhode Island AFSCME Council 94, was titled, Rhode Island Public Pension Reform: Wall Street’s License to Steal.
In that report, my firm investigated conflicts of interest related to the alternative investment consultant hired by the state pension, as well as profoundly troubling, if not illegal, terms related to many of the alternative investments the pension had made. A key findings was that the pension had secretly agreed to permit hedge fund managers to keep it in the dark regarding how its assets were 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.
Then-Treasurer Raimondo sharply disputed all of the above findings in the report and the pension continued its high-risk, losing alternative investments gamble. To date, the $7.9 billion pension has over $2 billion in foreseeable, preventable alternative investment losses.
To its credit, the SEC apparently immediately responded to the AFSCME-funded investigation—as it should have given the billions in retirement savings at risk, as well as the seriousness and credibility of the allegations. When the SEC follows in the footsteps of a credible report of a pension expert—a report which exposes very real dangers to the state pension—you’d think the pension fiduciaries (State Investment Commission and Raimondo) would have fully cooperated. Tellingly, they did not and Kid Magaziner has continued that legacy of secrecy.
What did the SEC do after being stonewalled by Rhode Island fiduciaries who claimed they could not cooperate with the regulator? We don't know for certain but if I were still at the SEC I would have simply asked the secretive money managers hired by the pension for the agreements they had with the pension. If I found the agreements prohibited cooperation with regulators, I would have recommended the agency take action.
Editor's Note: This article originally ran in Forbes on March 9.
Related Slideshow: Timeline - Rhode Island Pension Reform
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