Thursday, January 25, 2024
Public pension officials calling out wrongdoing are intimidated, threatened by pensions and ultimately ignored by regulators and law enforcement.
State and local government pension board and staff members regularly report their concerns regarding fraudulent activity and financial mismanagement internally at pensions, as well as to regulators and law enforcement. I know this because I receive calls from these individuals weekly and, at their request, have personally arranged meetings between them and regulators and law enforcement.
In my experience over the past 40 years, public pension boards and staff members who report their concerns internally are always:
1. Misled or lied to by others at the pension, including investment staff, internal and external lawyers representing the pension, actuaries, investment consultants and asset managers. The information provided in response to questions posed is, at best, incomplete and conflicted; at worst, it’s just dead wrong.
Oftentimes, the culture of corruption at public pensions is so complete that no one internally even knows the truth. That is, fraudulent representations by Wall Street have been accepted as gospel, without questioning, for decades.
In my book, Who Stole My Pension? I introduce the concept of “gross malpractice generally practiced” which prevades pension management. I state:
If you are depending upon a pension for your retirement security, you need to fully understand what “gross malpractice, generally practiced” means. It means that the people responsible for overseeing your pension—who, without your consent, have been entrusted with your retirement savings— are utterly lacking relevant financial experience. They either don’t know or don’t care about what’s best for your pension. Worse still, they have hired well known Wall Street firms—household names—who are grossly mismanaging your money. You should presume that these firms are solely interested in profiting from your pension.
Looting pensions is general practice. Wall Street looting has already, or will, cause the pension to falter, i.e. underperform or fail—unless you do something about it.
On other occasions, there is internal awareness of the wrongdoing but an unwillingness to address it—usually for political concerns. That is, the malfeasors have influential friends to protect them and the looters are not held accountable.
2. Intimidated or threatened by pension board members and staff, as well as internal counsel loyal to the incumbent regime. Those who ask difficult questions at public pensions are swiftly silenced and reprimanded.
Threats of censure, litigation and removal are commonplace. Every procedural device imaginable is employed to intimidate truth seekers. Schemes to intimidate would-be whistleblowers are usually crafted by generalist lawyers retained by the incumbent regime—lawyers who are themselves clueless as to investment management business practices and law. In my experience, lawyers to public pensions often do the most harm by proffering advice on complex matters as to which they lack expertise.
For that reason, I regularly advise public pension board and staff members with knowledge of potential wrongdoing to request knowledgeable independent counsel. The lawyers hired to represent the pension and its board are not your friends when you suspect wrongdoing. They will try to discourage whistleblowers from uncovering the truth.
When public pension board members have grave concerns that are not shared by other members of the board or its counsel, they should seek independent counsel paid for by the fund. They should not rely on lawyers hired to represent the board for advice regarding past or ongoing wrongdoing.
Public pension board members seeking independent counsel, paid for by the fund, when they have grave concerns about management of the pension is not unprecented. For example, in 2012, I served as independent counsel to a trustee of the Kentucky Retirement System who had reason to believe that multiple violations of law had occurred related to certain investments involving the management of $1.3 billion in pension assets and in excess of $14 million in undisclosed placement agent fees. The trustee, Chrisopher Tobe, had reported his concerns to the U.S. Securities and Exchange Commission in a whistleblower complaint. The SEC later investigated the matter but, for reasons never adequately explained, failed to take any action.
3. Ignored by regulators and law enforcement. On many occasions, I have been asked by public pension board and staff members to introduce them to the SEC and the FBI. While the SEC and FBI may agree to meet with public pension insiders aware of potential wrongdoing, every such meeting I have been privy to has ended in disappointment and anger on the part of pension insiders. After several tense meetings with a regional office of the SEC, two board members of a large state pension told me, “That was a complete waste of time. Given the risks to our personal safety involved, we would never do that again.”
In conclusion, if you’re a public pension insider aware or suspecting wrongdoing, know that you’re not alone. Dozens of others, at this very moment, are poised at a this very same precipice pondering what course to take. Expect to be intimidated and threatened by your public pension colleagues but don’t believe a word of what you’re told by them. More often than not, they don’t know what they’re talking about.
There’s a world of difference between reality as perceived inside a public pension and the world outside. Seek independent advice from experts outside the pension.
In 2010, the Department of Homeland Security launched a national “If You See Something, Say Something®” campaign to raise public awareness of indicators of terrorism and terrorism-related crime, and to emphasize the importance of reporting suspicious activity to the proper state and local law enforcement authorities. Given “gross malpractice generally practiced” at our nation’s public pensions, I’d similarly recommend: If You See Something, Report It.
Edward Siedle has been called “the Sam Spade of Money Management,” “the Financial Watchdog,” “the Pension Detective” and “the Equalizer” for his work pioneering over $1 trillion in forensic investigations of the money management industry.
The founder of Benchmark Financial Services, he is a former SEC attorney who, in 2017, he secured the largest SEC whistleblower award in history ($48 million) and in 2018, the largest CFTC award in history ($30 million). He is the co-author of the bestseller, Who Stole My Pension? (with Robert Kiyosaki, author of Rich Dad, Poor Dad) and the author of How To Steal a Lot of Money–Legally. He is an active member of the Florida Bar.