Siedle: RI State Pension Fiduciaries’ History Of Not Cooperating With SEC

Friday, March 10, 2017


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Gina Raimondo

In January 2014, the SEC's Public Pension Unit (a special unit within the SEC that focuses on public pensions) requested from then-Treasurer Raimondo documents related to the hiring of the pension's alternative investment consultant, as well as due diligence reports reviewed by the State Investment Commission when it considered investments in alternatives.

This SEC request was a mere two months after the findings of my firm's first forensic investigation of the state pension was filed with the SEC. As some readers may recall, this investigation, funded by Rhode Island AFSCME Council 94, was titled, Rhode Island Public Pension Reform: Wall Street's License to Steal.

Raimondo and the pension fiduciaries refused to provide the SEC with the information requested and current Treasurer, "Kid" Magaziner has continued Raimondo's flawed secrecy policy to this day. 

Translation: Magaziner—like his predecessor Raimondo—continues to this day to refuse to disclose to the public documents regarding the pension’s secretive alternative investments and due diligence reports. It’s disappointing that Kid Magaziner hasn’t reconsidered his responses to public records requests in light of his highly-touted Transparent Treasury initiative, but hardly surprising.

It takes years for children to mature—some never do.

Likewise, it takes years for politicians to honor campaign promises—some never do.

However, the documents his office provided to me reveal something far more sinister: a history of refusing to provide information on controversial alternative investment dealings to the U.S. Securities and Exchange Commission.

According to the documents provided, in early 2014, then-Treasurer Raimondo stonewalled when the SEC asked for information regarding the pension's alternative investments claiming that the confidentiality agreements the State Investment Commission had entered into with Wall Street prohibited compliance with the requests of a federal regulator—even when specifically asked. Confidential information about these investments could not be provided, said Raimondo and disclosure of even non-confidential information to a regulator required notification to the funds targeted.

Promises of protection to Wall Street billionaires trumped the fiduciary duty to state workers and taxpayers, as well as any obligation to assist the nation’s premier financial regulator.

Let’s break this down.

First of all, it’s utter nonsense that the agreements with Wall Street precluded the State Investment Commission or Rhode Island Treasury from providing the information to regulators.

I’ve never seen an alternative investment confidentiality agreement that prohibits a state or local government workers’ pension from responding to regulatory requests for information and other compliance with law. Even if an agreement said such, it wouldn’t be enforceable as a matter of public policy.

Furthermore, had such a draconian agreement been proposed by Wall Street to the State Investment Commission, no competent fiduciary should have ever signed it. How can withholding information from a regulator ever be consider “in the best interest of pension participants”—the standard required of pension fiduciaries?

If such perverse agreements, requiring protection of potential wrongdoers from regulatory scrutiny do exist and were signed by the past or current Treasurer, then let’s see them. If Treasurer Magaziner can’t show pension stakeholders the documents, then at least show them the confidentiality provisions that supposedly prohibit disclosure of the documents. Is that too much to ask for? Of course, then he’d have to explain why he ever signed the absurd agreements in the first place.

What’s the backstory?

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Ted Siedle

It seems that in January 2014, the SEC’s Public Pension Unit (a special unit within the SEC that focuses on public pensions) requested from then-Treasurer Raimondo documents related to the hiring of the pension’s alternative investment consultant, as well as due diligence reports reviewed by the State Investment Commission when it considered investments in alternatives.

This SEC request was a mere two months after the findings of my firm’s first forensic investigation of the state pension was filed with the SEC. As some readers may recall, this investigation, funded by Rhode Island AFSCME Council 94, was titled, Rhode Island Public Pension Reform: Wall Street’s License to Steal.

In that report, my firm investigated conflicts of interest related to the alternative investment consultant hired by the state pension, as well as profoundly troubling, if not illegal, terms related to many of the alternative investments the pension had made.  A key findings was that the pension had secretly agreed to permit hedge fund managers to keep it in the dark regarding how its assets were being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices.

Then-Treasurer Raimondo sharply disputed all of the above findings in the report and the pension continued its high-risk, losing alternative investments gamble. To date, the $7.9 billion pension has over $2 billion in foreseeable, preventable alternative investment losses. 

To its credit, the SEC apparently immediately responded to the AFSCME-funded investigation—as it should have given the billions in retirement savings at risk, as well as the seriousness and credibility of the allegations. When the SEC follows in the footsteps of a credible report of a pension expert—a report which exposes very real dangers to the state pension—you’d think the pension fiduciaries (State Investment Commission and Raimondo) would have fully cooperated. Tellingly, they did not and Kid Magaziner has continued that legacy of secrecy.

What did the SEC do after being stonewalled by Rhode Island fiduciaries who claimed they could not cooperate with the regulator? We don't know for certain but if I were still at the SEC I would have simply asked the secretive money managers hired by the pension for the agreements they had with the pension. If I found the agreements prohibited cooperation with regulators, I would have recommended the agency take action.


Editor's Note: This article originally ran in Forbes on March 9. 


Related Slideshow: Timeline - Rhode Island Pension Reform

GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform. 

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In the five years before Raimondo was elected, pension changes included a decrease in established retirement age from 65 to 62, increased eligibility to retire, and modified COLA adjustments.
Read the Senate Fiscal Office's Brief here.
(Photo: 401(k) 2013, Flickr)
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January 2009

Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:

1. An established minimum retirment age of 59 for all state and municipal employees.

2. Elimination of cost-of-living increases.

3. Conversion of new hires into a 401(k) style plan.


See WPRI's coverage of Carcieri's proposal here.

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Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions. 


Read the NCSL report here

(Photo: FutUndBeidl, Flickr)

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Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.

"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo


Check out Wall Street Journal's coverage here.

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November 2010

Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot. 

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April 2011

Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.

Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.

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May 2011

Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.

"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)


Read GoLocalProv's analysis of the report here.

Read the Truth in Numbers report here

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October 2011

Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.

“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee

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October 2011

Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.

“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)

Read more from the firefighters' battle with Raimondo here.

Check out the New York Times' take on RI's  pension crisis here.

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November 17, 2011

The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.


Read more from GoLocalProv here.

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November 18, 2011

Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.


Read about how Rhode Islanders react to RIRSA here.

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January 2012

Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms.  The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.


Read about the pension workshop here.

Read Raimondo's feature in Institutional Investor here

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March - April 2012

Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.

“The present law is sound fiscal policy and should remain unchanged.” -George Nee (Rhode Island AFL-CIO President)
See WPRI's coverage of Chafee's attempt to cut pension fund deposits here.
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December 5, 2012

Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package.  In response, Chafee issues a statement supporting the negotiations.


Read more about Raimondo's opposition here.

Read about Chafee's statement">here

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March 2013

Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.


Read about Raimondo's discussion of distressed municipalities here

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April 2013

The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.

"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)


Read GoLocalProv's coverage of the State Pension Fund's losses here

Read Ted Seidle's criticism of Raimondo in Forbes.

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June 2013

Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.


Read GoLocalProv's investigation into the rising pension costs here.

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September 2013

Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform. 

Read Taibbi's article in Rolling Stone.

Read GoLocalProv's response to Taibbi here.

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October 2013

As Raimondo eyes the role of Governor of Rhode Island in 2014, more behind-the-curtain information about the 2011 pension reform comes to light.


Read more from GoLocalProv about the players in the pension battle here.


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