CA: Powerful but obscure, Paul Wachter works his magic on Arnold’s blind trust

Capitol Weekly ^ | 8/25/05 | Malcolm Maclachlan

[NormsRevenge]

In August 2001, an audience got to see Arnold Schwarzenegger drive the M-47 Patton tank he originally drove during his short stint in the Austrian army when he was 18.

Riding next to the turret was Paul Wachter.

The photo op was part of a ceremony in which the tank went on permanent display at the Motts Military Museum in Groveport, Ohio. But, according to some of his critics, the tank ride with Arnold might be the perfect illustration of Wachter’s career.

Wachter, one of the most powerful political insiders in the state, is the manager of the blind trust that Gov. Schwarzenegger set up for his investments when he became governor.

Wachter has other jobs: In July 2004, Schwarzenegger appointed him to the University of California Board of Regents, one of the most prestigious of gubernatorial appointments. On the Board of Regents, Wachter is a member of the Investment Committee, which proposes policies and procedures governing UC’s $63 billion worth of retirement and investment funds.

Four months earlier, Schwarzenegger appointed him to the governor’s job’s commission. Wachter also is a partner in numerous prior Schwarzenegger investments, such as Acacia Partners and the Apollo Investment Fund. And a board member of After-School All-Stars program Schwarzenegger founded. He’s a Schwarzenegger friend of the last quarter century, and he accompanied the governor on a trip to the Middle East last May.

It is this Zelig-like ubiquity that critics of the Wachter-Schwarzenegger relationship object to most. They question whether someone who controls Arnold’s far-flung investments should also be in a position to the affect investment practices of the multibillion-dollar UC system or state financial issues over which the governor has influence.

But absent any conflicts, it’s perfectly legal for the governor to have such a close friend run his blind trust and serve in state government.

"I wouldn’t hold it against the governor if he would want it run by someone he knows and has a lot of trust in," said UCLA law professor Daniel Lowenstein, former chairman of the Fair Political Practices

Commission. "You can’t just assume that people are being dishonest."

Lowenstein headed the FPPC from 1976 to 1979, and helped oversee the 1978 rule that governs blind trusts. The rule requires the trustee to be a "disinterested party" who is not a relative.

Bob Stern, who also served on the FPPC in 1978 and is now the president of the nonpartisan Center for Governmental Studies, said that ideally the trustee unloads the assets in the trust and replaces them with new assets unknown to the owner. Wachter has said that this is exactly what he did with Schwarzenegger’s stock portfolio; documents also show that Schwarzenegger’s wife, Maria Shriver, sold a large block of stock less than a week before he husband took office.

One problem with the law, Stern added, was that it never included a definition of a "disinterested party." It’s common, he said, for the trustee to be a personal lawyer, accountant or financial advisor.

Despite the ambiguity, California "already has the toughest blind trust laws in the nation," Stern noted.

Fame and Accountability

While Schwarzenegger technically could have gone to any number of financial services firms to set up his blind trust, Wachter seems particularly well-equipped to handle Schwarzenegger’s needs — and not just because he knows Schwarzenegger well enough to score tank rides. Main Street Advisors, the Santa Monica investment firm Wachter founded in 1997, specializes in representing a small number of very wealthy clients.

In fact, according to a statement of economic interest forms Wachter filed with the FPPC after becoming a UC Regent last year, Main Street Advisors lists only 11 clients that pay the firm more than $10,000 a year. Four of these are directly connected to Schwarzenegger, including a separate "Shriver Blind Trust."

Doug Heller, spokesman for the Santa Monica-based Foundation for Taxpayer and Consumer Rights, is a frequent critic of the Schwarzenegger-Wachter arrangement – which he says may be legal, but is not ethical.

"This isn’t a blind trust, Heller said. "It’s a seeing-eye trust. Who knows how much California policy is being influenced by the guy who manages Arnold’s money?"

It’s not Wachter’s friendship with Schwarzenegger that’s the problem, Heller said, but this relationship combined with Wachter’s other activities.

For one thing, Wachter will hold the unpaid Board of Regents position until March 1, 2016, long after Schwarzenegger will have left office. As part of the Board’s Investment Committee -- where he sits along with other financial heavy hitters such as Richard Blum, U.S. Senator Dianne Feinstein’s wealthy investor husband -- Wachter can’t specify particular investments. However, the Board does guide general fund policy.

Such appointments have been controversial in other states, most notably when then-governor of Texas George W. Bush was charged in the late 1990s with stacking the University of Texas’ Investment Management Company (UTIMCO) with his associates, who then allegedly filtered investment funds to political donors.

An Oaken Shield?

Heller also contends that Wachter has used Schwarzenegger’s Santa Monica company — Oak Productions, named after his early weightlifting nickname, "The Austrian Oak" — as a conduit for many different investments and payments. Running this money through Oak makes it hard to make sense of all the different investments, Heller says.

"I’m not responding to them," said Margita Thompson, the governor’s press secretary, in response to charges from Heller’s group. "They don’t disclose who their donors are. We go above and beyond in listing our donors on the political side."

However, the speed with which Schwarzenegger separated himself from these deals has been encouraging, said Kathay Feng, executive director of California Common Cause, an organization that promotes government openness and accountability. She added that his celebrity status and vast wealth also focus public attention on everything he does.

"The unfortunate truth is that Schwarzenegger is probably not doing anything different from previous governors," Feng said. "But because he ran as an outsider who was going to clean up politics, people hold him to a higher standard."

Feng said that her organization has been working to close some of the "legal but not ethical" loopholes that Heller brought up. It supports legislation to strengthen outside income rules. This includes a bill sponsored by Sen. Jackie Speier, D-Hillsborough, that would ban many types of outside income for statewide office holders. Common Cause also wants to force more detailed disclosures for larger investments; current law requires the same level of detail for any investment over $10,000, she said.

This interplay of the blind trust and the need for financial disclosure raises a paradox: is the goal that everyone gets to know about Arnold’s finances — except Arnold?

"What are we going to do?" asked Wayne Johnson, a political consultant with JohnsonClark Associates in Sacramento. "Pick a day when Arnold’s out of the state and publish all of his financial information in the paper, then have a giggle about it when he comes back?"

[NormsRevenge]

Petitions ARE Available NOW!!!

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[Ursus arctos horribilis]

Would the dissenters be satisfied if he appointed Al Sharpton, Martin Sheen, a homeless person or Jesse Jackson to watch out for his financial investments??

[NormsRevenge]

If you read the entire article...

Based on it, there are potential conflicts, Yes or No, in your opinion?

Thanks.

[Ursus arctos horribilis]

I just offed a rant on the usual liberal desenting suspects.