By Angela Couloumbis of Spotlight PA, and Craig R. McCoy and Joseph N. DiStefano of The Philadelphia Inquirer
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The United States Securities and Exchange Commission joined the FBI in the survey of Pennsylvania’s largest pension fund, subpoenaing files on the adoption by its board of directors of a false figure for its financial performance – and on inappropriate “remuneration and gifts” possibly offered to staff.
Government employees are prohibited from accepting such gifts under a ban imposed by Governor Tom Wolf. The subpoena issued to the PSERS school pension scheme on Friday was the first indication that investigators are looking into possible gifts or money from investment advisers and consultants.
The FBI and Federal Prosecutors launched a criminal investigation into 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 approved in December for financial results.
Multiple subpoenas to prosecutors ordered senior PSERS officials to turn over information to a grand jury about the miscalculation and, in a seemingly unrelated case, the $ 5 million allocation from the pension fund in 2019 to buy real estate near their 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 actors and order reforms. He can’t put anyone in jail.
PSERS spokesman Steve Esack said on Saturday the fund had not commented on the SEC action.
The board’s mathematical error in its financial performance was not a minor error.
PSERS – the public school employee pension system – oversees the pensions of more than 500,000 active and retired educators. By state law, many school workers are required to contribute more to the pension system when it fails to meet certain financial goals.
But in December, the 15-member PSERS board said the profits were barely enough to spare teachers such a hike. Then, in April, he reverse course and adopted a new lower number. This triggered an increase in payments for more than 100,000 teachers and other school staff hired since 2011. More senior teachers received a pass.
The SEC subpoena solicits documents and communications, both external and internal, from the pension plan from December to present regarding “any error or recalculation of the average rate of return” and the “risk / share process”. A reference to the law that says teachers must share the risk and pay more when returns are disappointing. He also requested tapes of the board’s votes, people familiar with the matter said. It was sent to Jackie Lutz, the fund’s senior legal advisor.
The securities agency has reportedly subpoenaed Hamilton Lane Advisors, LLC – a suburban Philadelphia company that examines PSERS ‘stake in private investment firms – for information about its relationship with the pension fund. The summons explicitly stated that Hamilton Lane was not the target of the investigation. Hamilton Lane spokesperson Katie McGann declined to comment.
Board members were alerted to the new subpoena later Friday by attorney William Sullivan of Pillsbury Winthrop Saw Pittman in Washington. PSERS hired his company in April to face the federal investigation. Sullivan is a former federal prosecutor who helps lead his company’s white-collar criminal defense and corporate investigation team.
Besides Pillsbury, the fund has brought in two other law firms since the first subpoena – Philadelphia-based Morgan Lewis & Bockius and international firm Womble Bond Dickinson. The pension plan also paid individual lawyers for at least eight employees.
The pension fund said almost nothing about the miscalculation, beyond acknowledging the error six months ago. In internal reports obtained by The Philadelphia Inquirer, a key consultant, Chicago-based Aon Investment Consulting, appeared to bear the blame. He attributed the incorrect result to nothing more than “administrative data entry errors” by his staff.
The taxpayer-backed PSERS itself had refused an investigator’s request, filed under the state’s right-to-know law, to obtain documents on the error. The fund also alerted Aon and two other consulting firms, ACA Compliance Group and Buck Global LLC, of the demand. The news agency appealed against the refusal.
Last year, PSERS paid Aon $ 762,000 and Buck $ 226,000 for their work on calculus, among other tasks. He also paid ACA $ 60,000 to verify his calculations.
PSERS relies heavily on external consultants and fund managers – too heavily, critics say – as the fund’s performance has lagged behind those of other pension funds. Until this year, the fund allowed outside companies to book TRAVEL PREPARATIONS for the investment unit of 60 members of the fund. The fund managers would bear the cost and the PSERS would reimburse them later.
PSERS says it has paid more than $ 700 million, at the last annual count, in fees and profit sharing to more than 150 Wall Street companies and other private money managers. He has also spent more than $ 14 million on consultants, such as Hamilton Lane, Aon, ACA and Buck Global, according to the records.
When the pension system adopted the false number for its performance in December, it did so over objections from three board members. The three, who abstained from approving the figure, were former state treasurer Joseph Torsella, a Democrat; State Representative Frank Ryan (R., Lebanon); and Richard Vague, the secretary of state for banking appointed by Wolf, a Democrat.
At the time, the investment director of PSERS, James H. Grossman Jr., told critics their concerns were unfounded. “We have done due diligence,” he said. “We’ve got it covered. I don’t care.
Torselle had already warned Senior PSERS executives that the regime was recently using unverified data instead of its own previously certified numbers. PSERS declined to answer when asked if Torsella’s criticisms were confirmed by subsequent math exams.
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