The United States Securities and Exchange Commission has expanded federal review of Pennsylvania’s massive public school pension plan, requiring records that could show whether fund staff improperly exchanged gifts with one of hundreds of consultants and Wall Street investment managers.
The SEC’s new 30-page subpoena comes six months after the U.S. Attorney’s Office in Philadelphia and the FBI launched a criminal investigation into possible corruption linked to inflated returns on investment and land deals in Harrisburg in the United States. within the agency.
The commission gave PSERS, the state agency investing $ 70 billion to fund the pensions of half a million active and retired school staff, until Friday, October 8 to produce ” all documents and communications concerning any compensation, remuneration, reimbursement, money, gifts, tips, travel or anything of any value ”exchanged between the officials of the PSERS and the fund managers and consultants of the agency.
In its ethics policy for its 500 employees, the PSERS categorically states that “employees must not, directly or indirectly, solicit, accept or receive for personal use any gift”. Governor Tom Wolf has imposed a similar ban on all state employees.
The summons, first obtained by Bloomberg News, was sent to PSERS chief counsel Jackie Lutz last Friday. He did not disclose which companies could be suspected. Instead, he asks about the pension fund’s relationship with all of its sprawling roster of 180 outside fund managers, investment houses, hedge funds, private equity firms and financial consultants. In fact, the SEC reflected a public six-page PSERS list of these outside firms in its subpoena as an attachment.
PSERS pays these companies more than $ 500 million in fees each year.
Most are investment managers, ranging from industry giants like BlackRock to small venture capital firms in Pennsylvania, who invest billions of PSERS in private and public companies around the world. A smaller number, led by Montgomery County Councilor Hamilton Lane, act as an intermediary between PSERS and fund managers, helping the agency assess their performance. Some act as accountants.
“Unfortunately, we cannot discuss this matter,” Kate McGann, spokesperson for Hamilton Lane, said of the SEC subpoena.
Just because the commission is investigating does not mean “that we have concluded that PSERS or someone else has broken the law” or that the agency has a “negative opinion” of anyone, Heidi M wrote. Mitza, Senior Counsel for the SEC, in the subpoena. . “We are trying to determine if there have been any violations of federal securities laws.”
PSERS declined to comment on the SEC investigation, as it did for the criminal investigation. Several companies listed in the subpoena also declined to comment.
In part, the SEC is demanding to repeat those previously made by federal prosecutors in their first wave of subpoenas served on PSERS, the taxpayer-funded public school employee retirement system.
The SEC, like prosecutors, has demanded all documents, reports and emails regarding the board’s botched decision in December to pass an overly optimistic figure for fund earnings.
In April, the board disowned that figure as being wrong and adopted a new, lower one for profits. Earnings performance was lowered just enough to trigger a state law requiring 100,000 less senior school staff to pay an additional $ 26 million into the pension system. The SEC asked for information on the initial adoption of the wrong number and the fund’s internal investigations into how it made the mistake in the first place.
Before the panel adopted the wrong number, state treasurer Joseph Torsella, a top critic of the PSERS board, warned his staff were relying on unaudited numbers to assess performances.
His warnings were dismissed as unfounded by fund executive director Glen Grell and investment directors James H. Grossman Jr.
Now, the SEC, in the subpoena, requires all documents or communications from the PSER on “the decision to use unaudited financial information to calculate the average rate of return for the PSERS.” He is looking for material from January 1, 2020 to today.
The original subpoenas from federal prosecutors, also obtained by The Inquirer, indicated that the criminal investigation was focused on possible “honest services” and wire fraud frauds. Under leading U.S. Supreme Court rulings, prosecutors must indeed prove corruption or bribes to charge officials with the crime of not providing honest service.
The federal subpoenas, unlike the SEC’s, also asked about PSERS buying parking lots and industrial buildings along four blocks of downtown Harrisburg for redevelopment.
In the summons, the SEC is careful to ask questions not only about the fund employees who receive gifts, but also about any gifts the staff may have given to strangers.
The SEC does not lay criminal charges or jail anyone. Its remedies include fines and reform decrees. Sometimes the agency prohibits violators from working in the financial sector.
In the summons, the securities agency specifically looks for information on trips made by staff.
In April, the Inquirer published an article that first revealed the heavy spending of some 40 members of the fund’s elite investment bureau as its financial experts scoured the world to verify investments.
The article detailed hotel expenses which included a $ 1,178 night in New York for a staff member, a $ 1,144 night in Boston and a $ 955 night in Beverly Hills, among others. The plane costs were even more expensive, punctuated by a round trip to London for $ 15,627. This was one of 15 trips for which the fare was over $ 11,000.
In a complex arrangement, the external financial managers booked all travel arrangements and initially paid their expenses. However, the managers subsequently billed the pension plan for the expense. Thus, the pension fund claims that the trips were not gifts.
The fund has abandoned this mode of travel management. He now says he will pay his own costs upfront.
More than 100 separate PSERS contractors – a majority – have billed PSERS staff travel on their own account since 2017, according to PSERS data.
Daniel Hawke, a partner at the Arnold & Porter Washington law firm, which previously headed the SEC’s Philadelphia office, said in an interview that the commission is examining the violation of an agency’s own policies and federal laws on securities and investments.
In testimony before the US Senate earlier this month, Gary Gensler, President Joe Biden’s choice for SEC chairman, called for a thorough review of private investment managers who manage billions of dollars in retirement funds, “and in particular any conflicts of interest their managers may have.