News: CJ Exclusives

Controversial investigator hints at problems with pension managers

Siedle suggests pending SEC action could uncover legal problems involving investment managers and fees

More than two years after releasing a scathing report alleging that a glut of investment fund managers are collecting fees that have plundered North Carolina’s state employee pension plan, financial investigator Edward “Ted” Siedle said upcoming Securities and Exchange Commission action could relate to a whistleblower complaint filed with the federal agency.

“I’ve been working extensively with the SEC the last few years, and some of that may be public soon, but I can’t tell you publicly what we’ve been doing,” Siedle, founder of Benchmark Financial Services in Ocean Ridge, Fla., told Carolina Journal. He specializes in finding excessive and hidden fees and identifying investment managers cloaked from disclosure by pension plan operators.

“I think it will be very shocking, and potentially [result in] criminal action if anybody cares to get to the bottom of it. I will tell you there is a panoply of wrongdoing waiting to be exposed,” said Siedle, a former SEC attorney.

Siedle conducted a preliminary forensics study on the North Carolina Teachers and State Employees Retirement System, which has 900,000 members, in 2014 for the State Employees Association of North Carolina. State Treasurer Janet Cowell is the sole fiduciary for the state’s pension plans, which now have $89.8 billion in assets, the 10th-largest public pension system in the nation.

That analysis formed part of the basis for SEANC’s whistleblower complaint alleging possible pay-to-play rules violations by Cowell, former Clinton White House Chief of Staff Erskine Bowles, founder of a firm that secretively manages some state pension fund investments, and his wife, JPMorgan Chase Board of Directors member Crandall Bowles, who held political fundraisers for Cowell.

At the time Erskine Bowles said he had no active management role in the investment firm, and believed state pension fund investments should be public records.

“The stuff I’m working on impacts North Carolina, but it’s not specific to North Carolina,” Siedle said of his current collaboration with the SEC. He is examining “several matters” on a larger scale that “are heavily” relevant to problems he identified in North Carolina, and might involve some of the same players, he said.

Without directly referencing North Carolina, Siedle cited a New York Times article published in August that highlighted his work with an Indiana whistleblower. JPMorgan Chase paid a $950,000 settlement to Indiana for what the state termed practices “outside the standards of honesty and ethics generally accepted in the securities and trade industry.”

In his 2014 study, Siedle wrote that the state pension fund had underperformed by $6.8 billion due to excessive fees paid to outside investment managers, and lost investment opportunities. He concluded more than $30 billion was steered into hedge, private equity, venture, and real estate alternatives funds likely set up in large part in offshore, high-cost accounts with high-risk managers.

Cowell has used the North Carolina Trade Secrets Protection Act to thwart inspection of many investment performance documents and fee arrangements. Governor-elect Roy Cooper wrote an opinion as attorney general upholding the trade secrets disclosure exemption to public records laws.

Siedle said his 2014 analysis is “all still valid. There have been no additions to that report.”

Most of his conclusions “were very obvious, and these are things that the SEC is interested in,” Siedle said. “The bottom line is the nefarious things, business practices, and self-dealing there … are very serious, and have cost the pension billions of dollars, and there’s no disputing that.”

He is strongly critical of Cowell for the secretive pension management he believes siphons money out of the state pension through $180 million in unnecessary placement agent fees, direct investment in about 300 funds, and indirect investment in hundreds more of undisclosed underlying funds of funds that are spread around the world.

In 2014, Cowell, through a spokesman, denied Siedle’s contentions.

Siedle maintains that Cowell should have authorized a thorough, independent audit of the pension plan.

In response to a request for an update on the SEC complaint, Treasurer’s Office spokesman Brad Young wrote, “The department has not had any contact with the SEC concerning the SEANC complaint for over two years, since September 2014.” A request for an interview with Cowell was denied.

Siedle criticized state Auditor Beth Wood for not auditing the pension plan more aggressively, saying she “doesn’t have a clue, and you can quote me on that. … If you tell me that 30 percent of the assets of the state pension fund are in the Cayman Islands I’d get on a plane,” and go there to investigate, Siedle said, calling the auditor “Dead Wood.”

“The General Assembly has asked our office in legislation for more detailed audits of the six largest agencies in state government, including the Department of the State Treasurer,” said Bill Holmes, a spokesman for Wood.

“This newest audit will provide a more detailed look at the operations of the Treasurer’s Office, including the activity and administration of the pension fund,” Holmes said.

The Auditor’s Office “already meets and exceeds the federal standards for auditing the state’s financial statements, which include the pension fund,” he said. “Mr. Siedle’s uneducated name calling and uninformed opinions have not influenced us to change how we do our business.”

Treasurer-elect Dale Folwell said he has no updated information on the SEC complaint, and reserved comment. He promised on the campaign trail that on assuming office he immediately would meet with investment managers to determine where pension fund money is invested, who manages it, the amount of fees paid, and performance records.

“It’s certainly a good idea to get everyone in and answer on the record,” Siedle said.

“But then you’ve got to go to the next step and question the answers you’re getting, and catch the people who are lying,” Siedle said. “I will be happy to work with him to help him on that.”

Siedle warned that any investment problems Folwell spots but doesn’t remedy in his first year “become his problem” if a serious issue arises, and “he ends up holding the bag for what happened under Cowell.”