Wednesday, March 10, 2010

A Culture of Corruption?

Kenneth Lovett of the New York Daily News reports that Hevesi official David Loglisci pleads guilty in pension fund scandal, agrees to sing to Cuomo:
A former top state pension fund official under ex-controller Alan Hevesi pleaded guilty Wednesday to a felony corruption charge.

David Loglisci, who was Hevesi's chief investment officer, has agreed to dish to investigators for Attorney General Andrew Cuomo on a culture of corruption that existed in the office.

Loglisci had been charged along with top Hevesi political consultant Hank Morris of steering lucrative pension fund business to companies that agreed to pay kickbacks.

Morris is said to have received more than $25 million in pension-related fees during the four years Hevesi was in office.

Loglisci is the highest-ranking Hevesi official to plead guilty during the nearly three-year probe.

Loglisci said he was instructed by senior office officials to obtain Morris' approval prior to making recommendations on proposed investments.

He also said Morris had complete control over the pension fund's alternative investment portfolio and doled out business to those who paid him lucrative fees or contributed to Hevesi's campaign.

Those who refused were denied business.

"With today's plea, a former top official overseeing the state's single largest asset admitted that decisions were driven by politics and greed - not the best interests of the fund or its beneficiaries," Cuomo said.

"Not only were pension recipients defrauded but so were the taxpayers across New York who are ultimately responsible for sustaining the fund."

Loglisci's brother, Steven, a film producer, also benefitted. Various firms paid Loglisic hundreds of thousands of dollars to help finance a poorly received movie, "Chooch."

And he detailed how Morris was paid as a political consultant while also having financial interests in various proposed investments. Morris also made investment decisions for the office, including on deals in which he had ties, Loglisci admitted.

Loglisci pleaded guilty before Manhattan Supreme Court Justice Bart Stone and was released on his own recognizance with travel restrictions.

He faces a possible sentence of up to 1 1/3 to 4 years in prison for the charge of a felony violation of the Martin Act, a class E felony.

Dan Walters of the Sacramento Bee reports, Legislature's 'oversight' unit misses mark:
When Darrell Steinberg, the president pro tem of the state Senate, outlined his priorities last month, he included "oversight."

In Capitol jargon it means the Legislature's holding hearings or conducting investigations into how state programs are functioning.

Steinberg, in fact, has created a Senate Office of Oversight and Outcomes and staffed it with ex-newspaper reporters, supposedly to do the same kind of deep drilling they did in journalism.

Committees in both legislative houses are doing what they say are oversight hearings on various matters.

There have been some noteworthy oversight efforts in years past, such as investigations into former Insurance Commissioner Chuck Quackenbush's virtual shakedowns of insurers for political slush funds, and former Gov. Gray Davis' award of a big computer contract to a campaign contributor.

More recently, however, "oversight" has tended either to focus on relatively minor issues, or be grandstanding, such as Republican Sen. Jeff Denham's hearing last week on veterans' home services in Fresno, where he's seeking a congressional seat.

Back to Steinberg's Office of Oversight and Outcomes. He's hired some talented journalists, but so far they haven't produced much of lasting import. Recently, it generated a third report that was critical of Gov. Arnold Schwarzenegger's furloughs of state employees.

That's an important issue to public employees and their unions, and Steinberg's Sacramento district has a heavy contingent of unionized state workers. But it's hardly a bedrock issue for 38 million Californians.

Steinberg spokesman Nathan Barankin said the unit chooses its own topics to investigate, and the importance of the findings is "in the eye of the beholder."

So what might be more important targets for legislative gumshoes? How about the scandal at the California Public Employees' Retirement System over huge payments to "placement agents" who obtain multibillion-dollar investments for their clients? Many of them have been money losers, adding to the fund's huge value decline that taxpayers will have to cover.

How about the anomaly of CalPERS buying a $600 million chunk of Apollo Global Management, a conspicuous employer of placement agents, only to see that stake decline by more than 75 percent? How about a belated examination of how and why Apollo founder Leon Black persuaded U.S. Rep. John Garamendi, then the state insurance commissioner, to seize the junk bond portfolio of a big insurance company and then resell it some to some shadowy French investors for billions less than its value?

But wait. The same unions that hate furloughs also control the CalPERS board that made those sucker bets. Just a coincidence?

When the Legislature stops wasting taxpayer- financed time on trivia and bores into the CalPERS debacle, maybe we'll take its "oversight" seriously.

The propensity for corruption at public pension funds is extremely high. How high? I trust nobody and assume that at any given time, some senior public pension fund managers are on the take. Oversight is meaningless unless you have mechanisms in place to deter fraud and stop it before it occurs. I have long argued that every unit of a public pension fund should be subjected to an annual independent, comprehensive fraud audit, preferably done by experienced certified fraud examiners.

The same goes for an independent performance review of various investment activities. If you got guys gaming their benchmarks, they're defrauding the plan sponsor and stakeholders. Ignoring the problem only feeds a culture of corruption, enriching pension fund managers for delivering mediocre results. At one point, regulators have to put a stop to this gross injustice or else they're complicit in the plundering of public pension funds.

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