PA School Pension Fund Executives Seek To Gag Board Members Over Leaks To Reporters
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By Angela Couloumbis of Spotlight PA, Joseph N. DiStefano of the Philadelphia Inquirer and Craig R. McCoy of the Philadelphia Inquirer
Upset over leaks regarding a federal investigation into the PSERS pension fund, executives on the embattled plan’s board have cut other board members from legal briefings on the investigation – and are considering require them to sign nondisclosure agreements before resuming.
Panel chair, teacher Christopher Santa Maria, and board member Frank Ryan, a Republican state representative from Lebanon County, also told board members that they are considering request an investigation into the disclosures, according to people familiar with the matter.
At a closed-door board meeting in Harrisburg last week, they discussed whether to ask state attorneys, the state inspector general’s office, or a legislative committee bipartisan to track down anyone who leaked information.
The unusual, perhaps unprecedented, idea of requiring members of a state agency’s board of directors to sign a non-disclosure agreement, or NDA, has further divided a board of directors who seems more and more divided and acrimonious.
At the close of Wednesday’s 90-minute board meeting, State Senator Katie Muth, a Democrat from Chester and Montgomery counties who is the fund’s most vocal critic, spoke publicly to condemn information shutdown. She said Santa Maria and Ryan, the latest head of the board’s powerful audit subcommittee, wrongly excluded other board members from key information.
“If the chairman of this board and the chairman of the audit committee cannot include the whole board in all briefings and all meetings,” Muth said, they should “resign as they block this board in its obligations trustees “.
Neither a spokesperson for PSERS, nor Santa Maria or Ryan responded to requests for comment.
The pressure on PSERS – the public school employee retirement system – and its 15-member board of directors increased a week ago with the announcement that the United States Securities and Exchange Commission had joined the Federal prosecutors and the FBI to investigate the $ 70 billion pension plan for 500,000 active retirees and public school educators.
Like prosecutors, the SEC is investigating the embarrassing board error late last year when it officially approved a flawed and overly optimistic figure for the fund’s investment performance. The SEC, however, added a twist to the investigation – revealing that it was also investigating whether fund staff improperly accepted gifts from outside consultants and investment firms.
Lower investment returns forced some employees to contribute more to their pension plans and taxpayers had to pay more money.
The Inquirer and Spotlight PA, citing unidentified sources, disclosed the SEC subpoena a day after it was served on the head of the pension fund. Bloomberg News, followed by The Inquirer and Spotlight PA, then published articles detailing the subpoenas.
The board spent most of Wednesday’s closed-door meeting reviewing the leak issues and the NDA proposal, barely discussing the SEC subpoena or new allegations of gifts, the sources said. Santa Maria and Ryan said they were concerned the exposure of confidential information could harm the agency.
In rebuttal, the sources said, other board members questioned how such a gag order would be enforced and whether it would even be effective.
During the brief public session, Muth exchanged words with fellow board member Deborah Beck, an employee of Upper Darby schools. Muth also criticized William M. Sullivan Jr, the outside lawyer who briefed the board on the investigations and raised concerns about the leaks.
Muth said: “I remind the board that fulfilling your fiduciary duty requires you to be fully informed.”
Beck replied, “We are. “
Muth: “The whole board is not. And keep smiling, Mr. Sullivan.
The PSERS Board of Directors is made up of volunteers, serving to represent various constituencies, most of whom hold elected positions. Four are elected state legislators. One is the elected state treasurer. One is an elected member of the school board. Five were elected to their board positions in elections open only to educators.
On Wednesday evening, five days after the SEC subpoena arrived, the PSERS issued a two-sentence public statement confirming its delivery. The vague statement made no mention of the request for information about the botched calculation or the suggestion that staff may have inappropriately accepted gifts.
Six months after prosecutors first cited information from the pension system as part of a grand jury investigation, the taxpayer-backed PSERS has remained largely silent on the investigations. The board has never explained how it made the miscalculation and is fighting an offer by The Inquirer under the Pennsylvania Right-to-Know Act to release documents about the error .
In the original subpoenas, copies of which were obtained by The Inquirer, prosecutors also requested information about the multi-million dollar fund’s spending to purchase industrial buildings and parking lots near its Harrisburg headquarters. . The fund has also said little about this, or even explained its buying program.
Since the scandal broke, the board has hired three law firms and a financial consultant to help deal with the fallout. Attorney Sullivan, a former federal prosecutor who helps lead the white-collar criminal defense and corporate investigation team for a Washington law firm, briefed the closed-door board of directors of the ‘investigation.
In his April cover letter to be hired, Sullivan warned that the criminal investigation could pose “real and significant risks to members of the PSERS board.” He wrote that he had “been uniquely successful … in persuading government and regulatory authorities to refuse to continue criminal investigations.” He also pledged that his company, Pillsbury Winthrop Saw Pittman, could protect council members “from scrutiny from aggressive criminal investigations.”
Sullivan, paid $ 925 an hour for his work for PSERS, was among those in attendance at Wednesday’s meeting who raised concerns about the unauthorized release of information, sources said.
In an interview with The Inquirer, Edward Siedle, a lawyer and former SEC lawyer specializing in forensic pension investigation, said public pension systems have an obligation to be open.
“Corporate lawyers don’t understand that public pensions are public,” said Siedle, who is unrelated to PSERS or the investigations. “Corporate lawyers need to learn that it is not a characteristic, it should be the goal, of public pension plans to be accountable, because they need to inspire responsibility and confidence. “
Taxpayers pay approximately $ 5 billion into the RSFP treasury each year. School employees pay around $ 1 billion. Investment profits hit a record high of $ 12 billion last year.
In recent board meetings, the PSERS board has been torn apart by disagreements, with a minority pushing for the dismissal of the fund’s key executives and a majority rejecting a number of investments proposed by the finance staff of the fund. funds. That said, 12 of the 15 members signed a recent letter complaining that The Inquirer’s coverage reduced the board’s differences to a “schoolyard brawl.”
Muth did not sign the letter. After last week’s meeting, she asked the board to put unidentified senior executives on leave pending the outcome of investigations.
In June, she took the unusual step of suing the agency to the board of directors on which she sits, claiming in a lawsuit filed in the state’s Commonwealth Court that she had improperly blocked her access to PSERS documents. The pension fired back, calling it “one-sided” and accusing it of wanting to conduct an “independent investigation”.
Muth’s attorney, Terry Mutchler, of Obermayer in Philadelphia, responded that the pension plan was attempting to portray Muth as an “inept Nancy Drew” while flouting her duty to “scrutinize and investigate” the actions of funds.
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