Why Teachers, Firefighters, Police Need Rich Lawyers and Rich Financial Advisers: Siedle

Wednesday, December 13, 2023

Edward Siedle

 

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PHOTO: Joe Darams, Unsplash

If you’re a teacher, firefighter, police or other participant in a state or local government pension, you need to know whether your retirement savings are prudently invested. The risks related to underfunded government retirement plans are greater than ever, as are the challenges participants face accessing key investment documents.

It’s impossible for pension stakeholders, including participants and taxpayers, to determine whether plan fiduciaries are being diligent without taking action. Here’s why:

 

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All Public Pensions Invest Heavily In High-Risk, High-Cost Alternatives

Today state and local pensions in all fifty states invest a significant percentage (often 50% or more) of their assets in high-risk, high-cost so-called “alternative” investments, including private equity and credit, hedge and venture funds. The reason public pensions have loaded up on alternatives is obvious: Alternative investments pay the greatest fees to Wall Street—fees which Wall Street can use to pay-off politicians who influence the selection of investments. It’s what I refer to in my book, Who Stole My Pension, as “the politicization of the pension investment decision-making.”

 

All Public Pensions Agree to Allow Wall Street to Withhold Alternative Investment Documents From the Pensions Themselves and Participants

All of our nation’s public pensions withhold from government workers and retirees the prospectuses and other documents related to alternative investments. If you don’t believe me, request (pursuant to state public records laws) the alternative investment documents from your pension.

It’s participant money—set aside to provide for their retirement security—but teachers, firefighters and police are not allowed to see how it’s actually being invested.

For decades, public access to state and local pension investment documents was easy. Not anymore. Today all public pensions claim the alternative investments in their portfolios are exempt from public scrutiny. Public records laws have been eviserated. That means over $1 trillion of public monies has been swept into secrecy accounts—often offshore—that no one (including the pensions themselves, as explained below) is allowed to see. For example, pensions claim private equity documents which are broadly distributed to millions of wealthy investors globally are exempt from disclosure to the public because they are somehow protected “trades secrets.”

But public pensions not only deny routinely deny public records requests from pension stakeholders, they actually are complict with Wall Street in thwarting public scrutiny.

Public pension fiduciaries routinely enter into secrecy or confidentiality agreements—drafted by the Wall Street firms which manage these funds—which permit the managers to withhold key information from the pension itself, not just from workers and retirees. Here’s a real-life example of one such agreement from my book, How To Steal A Lot of Money—Legally.

“The organizational documents of certain Funds permit the Adviser and/or each such Fund’s General Partner to withhold information from certain limited partners or investors in such Fund in certain circumstances. For instance, information may be withheld from limited partners that are subject to Freedom of Information Act or similar requirements. The Adviser and/ or General Partner may elect to withhold certain information from such limited partners for reasons relating to the Adviser’s and/or General Partner’s public reputation or overall business strategy, despite the potential benefits to such limited partners of receiving such information (emphasis added). In addition, due to the fact that potential investors in a Fund may ask different questions and request different information, the Adviser may provide certain information to one or more prospective investors that it does not provide to all prospective investors.”

As a result of this sinister Wall of Secrecy, participants cannot possibly determine whether pension fiduciares are prudently selecting investments and cannot evaluate the strategies, risks and fees related to alternatives.

 

Public Pensioners Cannot Obtain Critical Documents Directly From Wall Street

Can teachers, firefighters and police ask Wall Street money managers directly for information about their public pension’s investments—information which the pension itself may not have and will not provide? Will that work?

No. Public pension stakeholders cannot obtain these critical documents directly from the Wall Street fund managers because, says Wall Street, under applicable law, these investments can only be offered and sold to wealthy investors (“accredited investors”) who can afford to lose their entire principal. Most government workers and retirees are not wealthy enough to be “qualified” under our securities laws to gamble on these investments… and yet they are— through government plans established for their retirement security!

In short, money managers are not permitted to provide these documents to government workers because alternative investments are recognized by regulators to be inappropriate for them.

Perversely, the regulatory scheme which is designed to protect ordinary investors, like teachers, firefighters, and police from highly speculative investments has been twisted to enable scamming.

Question: What’s worse than teachers, firefighters, and police—ordinary investors who can’t afford to lose their principal—gambling on private equity?

Answer: Pensions gambling the retirement savings of teachers, firefighters, and police on private equity in secrecy—after the pensions have agreed to be kept in the dark and to keep participants clueless.

 

Rich Lawyers and Financial Advisers Can Get Teachers, Firefighters and Police the Damning Documents

So, how can teachers, firefighters, and police access documents related to their retirement savings if their pension and the money managers it has hired refuse? As mentioned earlier, alternative investment documents (which Wall Street claims are entitled to “trade secret” protection) are broadly distributed to millions of wealthy actual and potential investors worldwide as part of the marketing effort. Simply put, any wealthy individual you know could potentially get hold of prospectuses and other offering documents related to the very funds your pension has invested your retirement savings in but won’t allow you to see!

Edward Siedle has been called "the Sam Spade of Money Management," “the Financial Watchdog,” "the Pension Detective" and "the Equalizer" for his work pioneering over $1 trillion in forensic investigations of the money management industry.

The founder of Benchmark Financial Services, he is a former SEC attorney who, in 2017, he secured the largest SEC whistleblower award in history ($48 million) and in 2018, the largest CFTC award in history ($30 million). He is the co-author of the bestseller, Who Stole My Pension? (with Robert Kiyosaki, author of Rich Dad, Poor Dad) and the author of How To Steal a Lot of Money--Legally. He is an active member of the Florida Bar.


 

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