Pennsylvania Ping!
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Posted on 09/25/2021 9:20:10 PM PDT by lightman
The U.S. Securities and Exchange Commission has joined the FBI in the investigation of Pennsylvania’s biggest pension fund, subpoenaing records about its board’s adoption of a false figure for its financial performance — and about improper “compensation and gifts” possibly offered staff.
State employees are forbidden from accepting such gifts under a ban imposed by Gov. Tom Wolf. The subpoena issued to the PSERS school pension plan Friday was the first indication that investigators are looking into possible presents or money from investment advisers and consultants.
The FBI and federal prosecutors launched a criminal probe of the $70 billion PSERS plan in March immediately after the fund’s board issued a brief statement revealing its belated doubts about the figure it endorsed in December for financial results.
Prosecutors’ multiple subpoenas ordered top PSERS officials to turn over information to a grand jury about the mistaken calculation and, in a seemingly unrelated matter, the pension fund’s $5 million appropriation in 2019 to buy real estate near its headquarters in Harrisburg.
While prosecutors and the FBI build criminal cases, the SEC pursues civil complaints. It has broad power to impose fines, discipline financial players, and order reforms. It can’t put anyone in prison.
PSERS spokesman Steve Esack said Saturday that the fund had no comment on the SEC action.
The board’s math mistake on its financial performance was no minor error.
PSERS — the Public School Employees’ Retirement System — oversees the pensions for more than 500,000 working and retired educators. Under state law, many school workers must pay more into the pension system when it fails to meet certain financial targets.
But in December, the 15-member PSERS board said profits were just barely good enough to spare the teachers such a hike. Then, in April, it reversed course and adopted a new, lower figure. This triggered an increase in payments for more than 100,000 teachers and other school employees hired since 2011. More veteran teachers were given a pass.
The SEC subpoena seeks documents and communications, both external and internal, from the pension plan from December to the present regarding “any errors or recalculation of average rate of returns” and the “risk/share” process, a reference to the law that says teachers must share in the risk and pay more when returns are disappointing. It also asked for records about board votes, people familiar with the matter said. It was sent to Jackie Lutz, the fund’s chief counsel.
The securities agency reportedly has subpoenaed Hamilton Lane Advisors, LLC — a suburban Philadelphia-based firm that reviews PSERS’ stake in private investment firms — for information about its dealings with the pension fund. The subpoena explicitly said Hamilton Lane was not a target of the inquiry. Katie McGann, a spokeswoman for Hamilton Lane, declined to comment.
Board members were alerted to the new subpoena later Friday by lawyer William Sullivan, of the Pillsbury Winthrop Saw Pittman firm in Washington. PSERS hired his firm in April to deal with the federal probe. Sullivan is a former federal prosecutor who helps lead his firm’s white-collar criminal defense and corporate investigations team.
Besides Pillsbury, the fund has brought in two other law firms since the first subpoenas hit — Philadelphia-based Morgan Lewis & Bockius, and the international firm of Womble Bond Dickinson. The pension plan has also been paying for individual lawyers for at least eight employees.
The pension fund has said almost nothing about the calculation mistake beyond acknowledging the error six months ago. In internal reports obtained by The Philadelphia Inquirer, a key consultant, Chicago-based Aon Investment Consulting, seemed to shoulder the blame. It traced the incorrect result to nothing more than “clerical data-entry mistakes” by its staff.
Taxpayer-supported PSERS itself had denied an Inquirer request, filed under the state’s Right-to-Know Law, for documents about the mistake. The fund also alerted Aon and two other consulting firms, ACA Compliance Group and Buck Global LLC, to the request. The news organization is appealing the denial.
Last year, PSERS paid $762,000 to Aon and $226,000 to Buck for their work on the calculation, among other tasks. It also paid $60,000 to ACA to spot-check its math.
PSERS relies heavily on outside consultants and money managers — too heavily, critics say — as the fund’s results have lagged those of other pension funds. Until this year, the fund permitted outside firms to book extravagant travel arrangements for the fund’s 60-member investment unit. The money managers would front the cost and PSERS would later pay them back.
PSERS says it paid more than $700 million, at last annual count, in fees and profit-sharing to over 150 Wall Street firms and other private money managers. It also spent more than $14 million on consultants, such as Hamilton Lane, Aon, ACA, and Buck Global, records show.
When the pension system in December adopted the bogus number for its performance, it did so despite the objections of three board members. The three, who abstained from approving the figure, were former State Treasurer Joseph Torsella, a Democrat; State Rep. Frank Ryan (R., Lebanon); and Richard Vague, the state banking secretary appointed by Wolf, a Democrat.
At that time, PSERS’ chief investment officer, James H. Grossman Jr., told the critics their concerns were groundless. “We did our due diligence,” he said. “We covered it. I’m not worried about it.”
Torsella had previously warned top PSERS executives that the plan was newly using unaudited data instead of its own previously certified numbers. PSERS has refused to respond when asked if Torsella’s criticism was confirmed by the subsequent reviews of the math.
Pennsylvania Ping!
Please ping me with articles of interest.
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Don’t worry, Beijing Biden will intervene and all will be well. We cannot have a federal agency investigating a union, that is just wrong!
I realize they have a hard time stopping other Americans from
doing what Representatives and Senators do every day, not to
mention administration staff when they leave.
These cush jobs some of them get are outlandish.
No wonder they don’t want to go after Hunter Biden, for not
being qualified to get the foreign dollars he gets.
Neither are many of them when they leave public service, but
get great paying jobs for which they have no experience.
Being familiar with my state’s pension system (and being a participant in it), I’m just speechless.
I know how ours is run, and we’re one of the best, but how something like this can happen.. 😶
(outside of corruption, I mean)
AON...from Chicago...
WHAT?!?! We use them!!!
And I think AON was recently bought by somebody...
Corruption in a union pension fund???
This is my shocked face: 😑
The Feebs, huh?
Let the cover-up commence!
PA pensioners are either about to be screwed...or US taxpayers will be.
Unfortunately it is not a union fund. It is a state retirement program that the taxpayers will end up holding the bag when the wheels come off the cart.
But of course! Those that would be in charge of crafting such a statement are also the ones that are the targets of the investigation! This is essentially the Mafia boss being perp-walked at noon on the courthouse steps. Wonder what the rank & file teachers think of this? How many will even speak up? Would it be covered in the media if they did?
I think all public pensions are being used by the democrats as a way to launder money. They are always short what they should have.
A little memory jogger about the middle of night pay raise in Pa, and wasn’t that connected to the pension increase? https://www.nbcnews.com/id/wbna8898589 or was that a separate scam?
The pension increase was done after a stock market run up where the PSERS administrators claimed it would need no more funding for 10 years. In 6 months the fund was already under funded. These liars should be on the gallows. It is getting harder to dig up history on this stuff. The state workers already had lucrative pensions and benefits while most in PA had self funded pensions/nothing. Bob Durgin WHP580 etc fought it with a rally at Capital that I attended.
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