Report unflattering ethically to former gubernatorial candidate
RALEIGH — North Carolina's public employee pension system will receive nearly $15 million in refunds and discounted fees from outside investment firms, according to a report released Monday. The report raised questions about the influence peddling and conflicts in managing retirement money.
Transactions involving nine outside firms were highlighted in a three-year review of activities involving placement agents, which are hired by investment firms looking to manage a portion of money in a pension system. The agents get a referral fee equal to a small percentage - perhaps 1 percent - of the amount the firm gets to invest.
A Washington-based law firm hired by state attorneys closely examined some activities when Richard Moore was treasurer. The report was released to an advisory panel for current Treasurer Janet Cowell and her staff. The treasurer is the sole trustee on how to invest the $83 billion in the state's pension funds for 875,000 active workers and retirees.
The report said three of the firms will make payments or provide discounts after reviewing the findings and negotiating with the department. All but one of the nine also have agreed to new agent restrictions, including bans on gifts to department employees and certain political contributions. The state won't conduct future business with a ninth firm.
The report, developed through interviews and other records, cited transactions involving Moore or then-Chief Investment Officer Patricia Gerrick, along with placement agents and investment funds from 2002 to 2008. Executives at some of the investment firms gave to Moore's election campaigns, the report said. He ran unsuccessfully for the Democratic nomination for governor in 2008.
Cowell's office has created several new ethics and investments rules since taking office in 2009, including updated and more extensive disclosure requirements for the placement agents.
Cowell said Monday that she wants to "make sure that we're upholding the integrity of the investment process, and then having transparency so that there's confidence on the part of the public."
The state Department of Justice also conducted interviews and referred the case to the U.S. attorney's office in Raleigh to determine if prosecution was warranted, state justice spokeswoman Noelle Talley said. A request for comment from the Raleigh office was referred to the U.S. Department of Justice in Washington, which didn't immediately respond late Monday.
Moore, the treasurer from 2001 through 2008, said by email Monday he was "greatly troubled by numerous factual inaccuracies" in the report and didn't understand why the lawyers "never asked to speak with me."
"I am extremely proud of the work I did as treasurer for the people of North Carolina," he wrote.
David Frederick, an outside lawyer and one of the report's co-authors, told the Investment Advisory Committee the review didn't uncover the extent of "pay-to-play" transactions found in other states. Placement agents have played roles in litigation or corruption scandals involving public pensions in New York and New Mexico. The report made more than 30 recommendations, of which nearly all have been carried out or accepted by Cowell, a Democrat.
While cautioning the report was based on voluntary interviews, the report's attorneys said their review uncovered allegations Gerrick and her daughter received free lodging from an executive at an investment firm that invested several billion dollars of retirement money.
Another placement agency hired an agent who had a previous personal relationship with Gerrick well before she became the state's investment officer. The placement agent and Gerrick exchanged gifts after one 2005 investment deal, while Gerrick solicited a donation from the agent to a charity, according to the report.
Cowell dismissed Gerrick in September 2009 but wouldn't say why. Gerrick, who didn't immediately respond to an email, said in 2009 investment managers made donations in her honor to a charity where she was a board member but that she never solicited people to do so.
The findings associated with Moore involved a placement agent identified in the report as someone who said he'd known Moore since grade school. The agent worked with two investment firms in which the state pension retirement ultimately invested nearly $300 million, the report said.
Placement agents can be helpful for smaller investment managers to market themselves effectively when competing against larger firms, the report said.