State Treasurer Janet Cowell told her employees in March, about two months after she’d been sworn in, that they and future employees couldn’t do business with or lobby the treasurer’s office for a year after they’d left their jobs.
Asked in August about the new policy and which employees had gone to work for firms that had business with the treasurer’s office, Cowell didn’t mention her predecessor. Richard Moore, who was state treasurer for eight years, invested $500 million of state pension funds in Relational Investors in August 2008, about three months after he lost the Democratic gubernatorial primary to Bev Perdue. In April, he went to work for the San Diego-based firm as a managing director.
“Increasingly, all things are being questioned,” Cowell said in August.
Cowell may be reluctant to talk about Moore — she declined to be interviewed for this article — but her new policies seem designed to address some of the questionable practices of Moore, who had a reputation of investing state money in firms whose employees gave him campaign contributions.
In September, Cowell said that she, senior staff, and key investment staff couldn’t do business with the treasurer’s office or try to influence them for two years after leaving their jobs. She also ordered that employees disclose travel reimbursements they had received from companies or associations and required that investment managers say if they are using placement managers, a company that helps investment firms solicit business for their firms. And in November, Cowell banned employees from taking gifts from companies doing business with the agency and also limited the charitable contributions they could solicit from contractors.
Cowell fired one of Moore’s top officials, Chief Investment Officer Patricia Gerrick, after Gerrick failed to disclose properly travel costs paid by investment firms. Gerrick also solicited donations from investment officers for SECU Family House, a charitable organization on whose board she served.
Cowell hired Ennis, Knupp & Associates, the Chicago firm tapped by the U.S. Treasury Department to help oversee its bailout fund for banks, to review how North Carolina has invested its money.
“I think she’s making some very positive changes,” said Charles Heatherly, a former deputy state treasurer. “It’s very encouraging as a beneficiary of the system to know that cronyism and favoritism aren’t going to be allowed as they have in the past.”
But other authorities on state pensions questioned how effective the new policies will be and whether Cowell should have done more.
“It’s too little, too late,” said Edward Siedle, president of Benchmark Financial Services in Ocean Ridge, Fla., which audits pension plans. “What are you going to do now? Are you going to put in place a policy, or are you going to investigate how much the state may have lost because of a failure to have this in place?”
Chris Tobe, a trustee for Kentucky Retirement Systems, said North Carolina doesn’t have enough employees to oversee adequately the dozens of investment managers and funds that Moore added to the state pension plan.
“All these rules are fine, but I don’t know if the treasurer has the budget or the political capability to hire staff to cover this,” Tobe said. “It’s almost like the investment design was an experiment in how to grow a play-to-pay machine.”
Moore did not return a phone call from Carolina Journal.
Cowell’s policies are similar to public pension reforms instituted by New York Attorney General Andrew Cuomo, who is investigating corruption in the New York state pension. In New York, a bribery scandal involving the state pension fund has led to criminal charges and guilty pleas. No public allegations of criminal wrongdoing have been made in North Carolina, but there is a widening multistate probe into corruption in public pensions.
Cuomo has required some investment firms to ban campaign contributions by their employees and relatives to pension officials.
Cowell, who has received more than $211,000 in campaign contributions in 2008 and 2009 from people and political action committees connected to funds the state invests in, has said she supports a law creating public financing for the treasurer’s race.
Former state Auditor Les Merritt said accepting campaign contributions from companies that the state invests in can create an appearance problem.
“It would be good if the treasurer said, ‘I am not going to take campaign contributions from anyone doing business with the state,’” said Merritt, now the executive director of the Raleigh nonprofit Foundation for Ethics in Public Service.
At least 36 states or other government bodies have some type of law addressing pay-to-play. Illinois lawmakers approved a law last year that bans companies that have contracts or want to get contracts with the state from donating to the campaigns of state officials who oversee who gets those contracts.
“The goal is to eliminate favoritism in the government contracting process,” said Steven Sholk, an attorney with Gibbons P.C. in New Jersey.
In Ohio, Ennis, Knupp was called in to investigate the state Bureau of Worker’s Compensation. Ennis, Knupp found that the bureau’s investments, which were touted as earning an annual return of 16.51 percent for a decade, were actually earning 7.3 percent, less than they would have earned in index funds. The state ended up putting the money in index funds.
Heather Franco, a spokeswoman for Cowell, said Ennis, Knupp hasn’t finished reviewing North Carolina’s investments.
“We hope to have some initial findings by the end of the year,” Franco said.
Cowell told Gerrick in August that she needed to resign after Gerrick missed a deadline to comply with another of Cowell’s directives: disclosing how much of her travel expenses had been paid by companies or associations. The paperwork that Gerrick turned in showed that she had almost $20,000 in help with travel in 2008 for 18 trips to places like London, New York, and Houston. Gerrick was later fired.
Cowell hasn’t said why Gerrick was terminated, though documents released in an open records request filed by CJ and other media organizations show that Cowell terminated Gerrick after “a review of various agency records” and “other concerns.”
Gerrick said some of her travel costs were reimbursed by fund managers under an agreement between the treasurer’s office and the fund manager.
“My immediate supervisor, the state treasurer, was always aware of my travel and had authorized my traveling at the expense of others,” Gerrick said. “These trips were either because I was representing the N.C. pension plan on an advisory committee of a particular investment, or as part of due diligence on one of the pension plan’s existing fund-of-funds relationships.”
Sarah Okeson is a contributor to Carolina Journal.