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North Carolina Report

North Carolina Report

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Published by pandoeditorial
North Carolina Report
North Carolina Report

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Published by: pandoeditorial on Apr 22, 2014
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04/23/2014

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North Carolina Pension’s Secretive Alternative Investment Gamble: A Sole Fiduciary’s Failed “Experiment”
Forensic Investigation of the Teachers’ and State Employees’ Retirement System of the State of North Carolina for the State Employees Association of North Carolina, SEIU Local 2008 by Benchmark Financial Services, Inc., April 22, 2014 
 
 
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Key Finding:
Treasurer Cowell’s political manipulation of the state pension fund has cost North Carolina $6.8 billion in fees and lost investment opportunities during her tenure.
North Carolina Pension’s Secretive Alternative Investment Gamble: A Sole Fiduciary’s Failed “Experiment
Executive Summary
Janet Cowell is neither the first North Carolina State Treasurer to abuse her power as sole fiduciary of the state pension nor, absent radical structural reform, will she be the last. Pay-for-play has long been a problem in the state’s pension system. For more than a decade state treasurers have handed out billions of dollars in public assets to money management and other firms that contribute to their political campaigns. Cowell has taken this
 quid pro quo
 to a new level as the Teachers’ and State Employees’ Retirement System of the State of North Carolina (“TSERS”) has grown to $87 billion and disclosed fees paid to Wall Street have skyrocketed 1,000 percent. Cowell’s political manipulation of the state pension fund has cost North Carolina
$6.8 billion
 in fees and lost investment opportunities during her tenure. The unchecked ability to steer tens of billions in workers’ retirement savings into hundreds of the highest-cost hedge, private equity, venture and real
 
 
   N   o   r   t    h   C   a   r   o    l   i   n   a   P   e   n   s   i   o   n    ’   s   S   e   c   r   e   t   i   v   e   A    l   t   e   r   n   a   t   i   v   e   I   n   v   e   s   t   m   e   n   t   G   a   m    b    l   e 
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estate funds ever devised by Wall Street, in exchange for political contributions to her campaign and to the campaigns of other influential politicians, makes the Treasurer today arguably the state’s most powerful elected official. The profound lack of transparency related to these risky so-called “alternative” investments provides investment managers ample opportunities to charge excessive fees, carry out transactions on behalf of the pension on unfavorable terms, misuse assets, or even steal them outright. Worse still, the Treasurer has betrayed her fiduciary duty by entering into expansive agreements with Wall Street to keep the very details of their abuse of pension assets secret — including withholding information regarding grave potential violations of law. Kickbacks, self-dealing, fraud, tax evasion and outright theft may be designated as confidential pursuant to the North Carolina Trade Secrets Protection Act, says the Treasurer. On a more granular level, Cowell’s efforts to thwart disclosure have helped mask potential violations
 
including, but not limited to the following: fraudulent representations related to the performance of alternative investments; concealment and intentional understatement of $400 million in annual alternative investment fees and expenses to date; concealment of approximately $180 million in placement agent compensation; the charging of bogus private equity fees; violations of securities broker-dealer registration requirements related to private equity transaction fees; securities and tax law violations regarding investment management fee waivers and monitoring fees; self-dealing involving alternative investment managers; mystery investor liquidity and information preferences, amounting to licenses to steal from TSERS; pension investment consultant conflicts of interest; predatory lending and life settlement related fraud.

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