Skip to comments.S.E.C. Investigating CalPERS on Disclosures
Posted on 01/06/2011 10:07:42 PM PST by GreatJoeMcCarthy
Federal regulators are investigating whether California violated securities laws and failed to provide adequate disclosure about its giant public pension fund, according to a person with knowledge of the investigation.
The Securities and Exchange Commission normally polices companies, but last year it brought its first enforcement action ever against a state, accusing New Jersey of securities fraud for misleading bond investors about the condition of its pension fund. The commission signaled, in its settlement with New Jersey, that it was going to look more broadly at the pension disclosures of states and cities.
The fund, the California Public Employees Retirement System, known as Calpers, lost about a quarter of its total investment portfolio during the financial crisis, leaving the state responsible for replacing billions of dollars each year and contributing to its huge deficit. The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.
But it is unclear whether investigators are focusing on those risks or on possible conflicts of interest in steering investments to related parties, the subject of a separate investigation by the attorney general of California.....
...If federal investigators are able to make a case that California misled investors about the risk in its pension fund, it would send a powerful signal to other public funds, which almost without exception base their financial reporting on average annual investment returns of about 8 percent a year, something hard to defend in todays markets, no matter what the investment mix.
(Excerpt) Read more at nytimes.com ...
Calipers way back when Pete Wilson was govt and earlier was decent. Now it is a pile of money the Dems just loot. They teachers and other liberals voted for it and voted in people to rob them.
This sounds like an explosive story with implications for all state pension funds.
I am deeply worried about the financial situation in California. This story sounds like another massive crack in the foundation. As goes California finance so goes the nation, and New York is in horrible financial shape as well. I can’t begin to imagine the horrors if both California and New York begin to default.
I wonder if this story is a portend of things to come if Social Security were to be privatized. I hope someone with more knowledge on this will comment.
ps - I think New Jersey is under investigation by the S.E.C. for the same kind of pension fraud.
¨No pension for you¨ bump.
Ron Paul: “The U.S. Government Must Admit It Is Bankrupt”
The SEC investigates after the fact usually and it is a political agency. The lower level workers at the SEC and mid level are usually diligent but the top management are usually political hacks.
Calipers has been a piggy bank for liberals and union bosses in CA for at leats 2 deacdes.
Well, public pension funds are union dominated, so I am quite surprised to see a possibility that they might be investigated. Hopefully CALPERS serves as a poster child for the need for proper disclosure at least as stringent as for a private sector pension or retirement fund.
With CalPERS, the employee contribution amount is fixed but the employer amount varies so the risk to the plan is borne by the employer (city, county, state). California taxpayers are screwed and about to get more screwed.
1. CalPERS COSTS TO CITIES SKYROCKETING----BONDHOLDERS BEWARE - The current rate of return assumption CalPERS is using is 7.75% compounded annually. However, CalPERS board is working on a new asset allocation policy based on a meeting last week with investment professionals. The new return assumption rate will be lower and announced in February 2011. For every ¼ point CalPERS lowers its investment return assumption, the city or county or state cost will go up 2 % in one of two categories of contributions it must pay into and 4% in the other. In other words, the burden on cities, counties, and the state is about to balloon come Spring. If the rate is lowered to Bill Gross's "new normal" rate of return of 4% that would mean a city or county would have to pay over 22% MORE in contributions. A sum sure to sink many cities and maybe a few counties. If the return assumption gets lowered a tiny amount and the actual returns are close to the "new normal" then CalPERS will just dig a larger hole to be filled down the road.
2. MADOFF WOULD BE PROUD - Compounding the problem is that in 2005 after CalPERS lost 1/3 of its assets in the dotcom bubble it created a "new rate stabilization policy." The new policy changed the Actuarial Value of Assets (AVA), a method of smoothing the asset valuation, from an avg of 3 years to an avg of 15, thus inflating the AVA due to previously strong years. By doing this they masked the downturn in the AVA thinking the following years would allow them to catch up and smooth out the massive dotcom loss. Trouble is, 2008-2009 came along and shot holes in this assumption and not they are more screwed.
3. MADOFF SLEIGHT OF HAND #2 - Then compounding the problem moreso, after the 2008-2009 losses, CalPERS changed their assumptions AGAIN to "smooth" the losses. They then changed the AVA to MVA ratio to 60% to 140% from 70% to 120%. On the video, you can hear the actuarial state "that means we will defer most of the loss to future years. This means the city will realize another increase in future years. I hate to bring bad news but those are the facts."
In 1978, then-Gov. Jerry Brown (reelected in 2010) signed a crucial bill that gave public workers, already protected under civil service, collective bargaining rights on top of that. Such legislation created far more than mere bargaining power. It also gave the unions access to dues money that could be deployed to reward friends in the legislature as well as beating back reform efforts at the ballot box.
"Wasn't my fault," 2010 Candidate Brown told cheering Democrats.
Drugs...I blame the drugs...;o)
“Wasn’t my fault,...”
As I said during the campaign “The “H” it wasn’t!”.
I would trust the private sector more than the State of California or any other state for that matter.
Social Security were to be privatized.
The politicians have been robbing Social security for decades. No one should be shocked by this turn of events.
I agree with trusting them also, but have you noticed that almost all the states that have massive problems with their pensions also have their legislature controlled by a single party?
What I believe this means is those who are put in charge of the funds are also of that party and there is very little oversight as to where the funds are directed.
Investing pension holdings into companies that might not be the soundest of financial decision but will guarantee large donations to the party, or help prop them up for ideological reasons is what I think might be happening. Take the green movement for example, how many liberal leaning states gambled heavily in investments concerning solar and wind instead of guaranteed returns in more conventional energy companies. Just one example, but I think nationwide ideological investment rather than sound standard practices found in the private sector could account for some big losses adding up.
NOTE If Calpers misrepresented financial returns to tax-exempt bondholders, that is prosecutable. The FBI, IRS and SEC should be informed about wrongdoing. The FBI should interrogate Calpers officials with an eye to prosecutions.
For every ¼ point CalPERS lowers its investment return assumption, the city or county or state cost will go up 2 % in one of two categories of contributions it must pay into and 4% in the other. In other words, the burden on cities, counties, and the state is about to balloon come Spring.
If the state, cities, and counties mounted tax-exempt electoral bond issues with falsified data, and was using tax-exempt public monies under false pretenses, that is prosecutable.
It's time for the FBI, the IRS and SEC to investigate Calpers.
POSSIBLE CHARGES: illegal conversions of public monies; facilitating govt fraud; official acts prohibited; misuse of funds; abuse of tax-exempt monies, violating public office; misuse of government position; abuse of government power; conflict of interest; influence buying; conspiracy to deceive; misuse of elective office, collusion, conspiracy to collude; falsifying official documents, presenting false federal instruments for filing, extortion, forgery.
REPORT TAX FRAUD AND TAX LAW VIOLATIONS HERE:
IRS TOLL-FREE 1-800-829-0433-you may remain anonymous when reporting tax fraud.
Report fiduciary negligence; signing off on falsified documents here:
FBI TIP PAGE http://tips.fbi.gov/ (you may remain anonymous)
EXCERPT Just how deeply in debt are Cali state and local governments? The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate.
Warnings pertained to the state's "general obligation debt," which currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees. Read more at sacbee.com ...
What Calpers failed to disclose, however, was that:
(1) the state budget was on the hook for shortfalls should actual investment returns fall short of assumed investment returns,
(2) those assumed investment returns implicitly projected the Dow Jones would reach roughly 25,000 by 2009 and 28,000,000 by 2099, unrealistic to say the least
(3) shortfalls could turn out to be hundreds of billions of dollars,
(4) Calpers's own employees would benefit from the pension increases, and,
(5) members of Calpers's board had received contributions from the public employee unions who would benefit from the legislation.
Had such a flagrant case of non-disclosure occurred in the private sector, even a sleepy SEC and US Attorney would have noticed. You said just what I was going to say. Sure, Calpers "did not disclose." But 99% of the California legislature sat on their hands and were willing participants in this fraud.
If a huge bill, with a huge price tag, with a huge financial obligation that extends way into the future, gets passed without more than one legislator raising one question about it, what in Hell's Bells are these people being paid to do for a job?
I hope they go for it...Really. The private sector tax payers have already been robbed and gang raped by government to pay for all these tens of thousands of government payroll parasites, their fat salaries, lucrative pensions and lottery style retirement benefits..
I can only hope they come at the tax payers for more to pay for their tax funded retirements.
This will be fun since most of the tax payers are broke, their wages stagnant for the past 10 years, with millions out of work, and millions that have lost it all.
In the end, those running CalPERS will be jailed or will leave the country, those hundreds of thousands of fat government checks issued each month? Ferrrget it.
These state and union pension funds have some disgression on alternative investments as much as 15% of the portfolio. CALPERS was investing in Sean Puffy Coombs businesss, Ron Burkle’s scams and other junk. You would think pension money is safe but “it ain’t.” The Dems and unions loot em all the time.
Idiots in California voted for this corruption.
I would trust the mob more than the State of California or any other state for that matter.
You’re right on the money there.
I work for the State of CA and my pension is with CALPERS, and I would LOVE it if they’d do away with our defined benefit plan and switch us over to defined contribution.
That’s because I truly fear there won’t be anything for me otherwise when I go to retire in 15 years (that would be the soonest I could retire).
There are two ways that they could make the switch, and both of them seem very fair to me.
One, they could determine exactly how much funding each employee has contributed plus what the State was supposed to contribute each month (it’s printed right on each of our pay stubs, so it should be trackable), add in a fair interest rate based on average market increases each year, and move that specific sum over into a 401K-style plan that each employee then manages from then on.
Or, they could pick a date and give each current employee their defined benefit amount on retirement based on that date (so, for example, if I had worked 10 years as part of PERS up to that date, when I turn 55, I get 20% of my highest pay), and then after that date, we all get switched to a 401K-style plan (and whatever I end up getting above and beyond that 20% is based on how wisely I invested the funding I contributed).
I’d take either of those options in a heartbeat over waiting and hoping that CALPERS is still solvent by the time I’m supposed to retire. Same goes for social security, now that I think about it.
I believe that in this, and several other areas of pension fraud, are ripe for a qui tam firm to start making some cases.
The public should become more familiar with qui tam cases, because the public fraud against a state’s taxpayers gives a lot of people standing to sue.
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