Probe of Pennsylvania School Pension Fund investigates employee gifts and travel from Wall Street companies
The U.S. Securities and Exchange Commission has expanded state control of Pennsylvania’s gigantic public school retirement plan and required records that could reveal whether the fund’s employees improperly traded gifts with hundreds of Wall Street advisors and investment managers.
The SEC’s new 30-page subpoena comes six months after the Philadelphia Attorney’s Office and the FBI opened a criminal investigation into Harrisburg for possible bribery related to excessive investment income and land deals.
The commission gave PSERS, the government agency that invests $ 70 billion to fund pensions for half a million working and retired school staff, by October 8, “All documents and notices relating to compensation, allowances, reimbursements, monies, gifts, Allowances, Allowances, Travel, or Anything of Any Value ”is exchanged between PSERS officials and the agency’s asset managers and advisers.
In its Code of Ethics for its 500 employees, PSERS flatly states that “Employees may not, directly or indirectly, solicit, accept or receive gifts for personal use”. Governor Tom Wolf has imposed a similar ban on all state employees.
Edward Siedle, a former SEC attorney who specializes in forensic review of retirement plans, said Thursday he was surprised by the agency’s investigation into a public retirement plan.
“This is unprecedented,” he said. The SEC typically focuses on trading companies and securities markets.
The summons was sent to PSERS Chief Counsel Jackie Lutz last Friday. Which companies could be suspected was not revealed. Instead, she asks about the business of the pension fund, which has an expansive list of 180 outside wealth managers, investment houses, hedge funds, private equity firms and financial advisors. In fact, in its subpoena, the SEC mirrored a public, six-page PSERS list of these outside firms.
PSERS pays such firms more than $ 500 million in fees annually.
Most are investment managers, from industry giants like BlackRock to small Pennsylvania venture capital firms who invest the billions of PSERS in private and public companies around the world. A smaller number acts as an intermediary between PSERS and the asset managers and helps the agency evaluate their performance.
The Commission’s investigation does not mean “that we have concluded that PSERS or anyone else has broken the law” or that the agency has “a negative opinion” of anyone, wrote Heidi M. Mitza, senior attorney at the SEC, in the subpoena. “We’re trying to determine if there have been any violations of federal securities laws.”
PSERS declined to comment on the SEC investigation and the criminal investigation. Several companies from the list in the subpoena also declined to comment.
In addition to the retirement plan, the SEC is also known to have issued a subpoena to at least one leading fund advisor, Hamilton Lane, a Conshohocken firm that specializes in private equity investments that are not publicly available. “Unfortunately we cannot discuss this matter,” said Kate McGann, a spokeswoman.
In large part, the SEC is asking to reiterate those previously made by federal attorneys in their first subpoenas to PSERS, the taxpayer-funded pension scheme for public school workers.
The SEC, like prosecutors, demanded all documents, reports, and emails regarding the board’s botched decision in December to accept too rosy a number for fund profits.
In April, the board ruled this number incorrect and adopted a new, lower number for earnings. Profit performance was downgraded just enough to trigger state law requiring 100,000 lower-senior school staff to contribute an additional $ 26 million to the pension system. The SEC requested information about the initial acquisition of the wrong number and the Fund’s internal investigations into how the mistake was made in the first place.
Before the panel took the wrong number, then-state treasurer Joseph Torsella, a leading critic of the PSERS board of directors, warned that its staff would rely on unaudited numbers to judge performance.
His warnings have been dismissed as unfounded by the Fund’s Executive Director, Glen Grell, and Chief Investment Officer James H. Grossman Jr.
In the subpoena, the SEC requests any documents or communications regarding “the decision to use unaudited financial information to calculate the average return on PSERS.” It is looking for material from January 1st, 2020 until today.
The Inquirer and Spotlight PA first reported the submission of the subpoena on Saturday. Bloomberg News later received a copy of the document, followed by the news organizations.
The original federal prosecutor’s summons, which The Inquirer also received, stated that the criminal investigation focused on possible “honest service” fraud and referral fraud. According to key rulings by the US Supreme Court, prosecutors must prove factual bribery or kickbacks in order to accuse crime officials of improper service.
The federal subpoenas, unlike the SEC, also asked about PSERS buying parking lots and industrial buildings along four blocks in downtown Harrisburg for redevelopment.
The SEC does not file a criminal complaint or detain anyone. His remedies include fines and reform orders. Sometimes the agency prohibits violators from working in the financial sector.
In its subpoena, the commission asks not only about gifts for employees of the Fund, but also about gifts that employees have given to outsiders. It specifically searches for information about employee journeys.
In April, The Inquirer first revealed the heavy spending of around 40 members of the fund’s elite investment bureau as its financial experts traversed the world to review investments.
The article details hotel charges, which included an overnight stay in New York of $ 1,178, an overnight stay in Boston for $ 1,144, and an overnight stay in Beverly Hills for $ 955. Airfare was even higher, with 15 airfares worth over $ 11,000 between 2017 and 2019.
As part of a complex agreement, outside money managers booked all travel arrangements for PSERS staff and paid the costs first. According to fund data, more than 100 PSERS contractors did so in 2019 – a majority.
Since managers later billed the costs to the pension fund, the fund argues that the trips weren’t gifts.
PSERS abandoned this method of travel processing in July and now says it pays for itself from the start.
In a testimony to the Senate earlier this month, Gary Gensler, President Joe Biden’s election as chairman of the SEC, called for heightened scrutiny of private investment managers handling billions of dollars in retirement savings, “and their managers’ conflicts of interest in particular.” can have.”
90.5 WESA partners with Spotlight PA, a collaborative, reader-funded newsroom that produces accountability journalism for all of Pennsylvania. More at Spotlightpa.org.