Pennsylvania Schools Pension Fund SEC Investigation Examines Wall Street Staff Giveaways and Corporate Travel | News, Sports, Jobs


HARRISBURG – The U.S. Securities and Exchange Commission has expanded federal review of Pennsylvania’s massive public school pension plan, demanding records that could show whether fund staff improperly exchanged gifts with one of hundreds Wall Street consultants and 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 that is investing $ 70 billion to fund the pensions of half a million school workers and retirees, until Friday, October 8 to produce “All documents and communications concerning any compensation, remuneration, reimbursement, money, gifts, tips, travel or any item of any value whatsoever” exchanged between PSERS officials and agency fund managers and consultants.

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 a gift”. Governor Tom Wolf has imposed a similar ban on all state employees.

Edward Siedle, a former SEC lawyer specializing in forensic examination of pension plans, said Thursday he was surprised by the agency’s investigation into a public pension plan.

“This is unheard of” he said. The SEC generally focuses on trading companies and securities markets.

The summons 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 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 the 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.

The commission’s investigation does not mean “That we have concluded that the PSERS or any other person has broken the law” or that the agency has “a negative opinion” from anyone, wrote Heidi M. Mitza, senior SEC adviser, in the summons. “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.

“Unfortunately, we cannot discuss this issue”, Kate McGann, spokesperson for Hamilton Lane, said of the SEC subpoena.

In part, the SEC is asking 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 figure for profits. Benefit performance has been 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 Director James H. Grossman Jr.

In the summons, the SEC requires any document or communication concerning “The decision to use unaudited financial information to calculate the average rate of return of the PSERS”. He is looking for material from January 1, 2020 to today.

The Inquirer and Spotlight PA first reported the subpoena filing on Saturday. Bloomberg News then obtained a copy of the document, followed by news outlets.

The original subpoenas from federal prosecutors, also obtained by The Inquirer, indicated that the criminal investigation was focusing on possible “honest services” fraud and wire fraud. 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.

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 its subpoena, the committee is careful to ask questions not only about the fund employees receiving gifts, but also about any gifts the staff might have given to strangers. It specifically searches for information on trips made by staff.

In April, The Inquirer first revealed large spending by 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, a $ 1,144 night in Boston and a $ 955 night in Beverly Hills. Airline costs were even more expensive, with 15 fares exceeding $ 11,000 between 2017 and 2019.

In a complex arrangement, the external fund managers booked all travel arrangements for the PSERS staff and initially paid the costs. More than 100 PSERS entrepreneurs – a majority – did so between 2017 and 2019, according to fund data.

Because the managers subsequently billed the pension plan for the expenses, the fund argues that the trips were not gifts.

PSERS ditched this method of managing travel in July and now says it will pay its own costs from the start.

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 funds. of retirement, “And in particular the conflicts of interest that their leaders may have”.

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