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Wed September 25, 2013
Feds Launch Investigation Into Alleged Misconduct at Atlanta Pension Fund
WABE has learned the U.S. Securities and Exchange Commission has launched an investigation into alleged misconduct at Atlanta's general employee pension fund.
Federal investigators are ordering city officials and pension board members to turn over information related to the city's longtime pension advisor, Larry Gray, and his role in steering roughly $64 million in pension money to his own hedge fund late last year.
Word of the investigation has raised fresh concerns about the financial practices of Atlanta's pension boards and the conduct of several officials in Mayor Kasim Reed’s administration.
For now, Reed is under strict orders not to discuss the SEC investigation, but he said he was cooperating with federal officials.
"I’m never concerned about the federal government getting involved because at the end of the day I believe that light is the best antiseptic. All we’re going to do is cooperate," said Reed.
Retired city employee and pension board member Angela Green filed the original SEC complaint against Larry Gray in January after, she says, her concerns fell on deaf ears.
“When Mr. Gray presented the product to us, he had never told us that it was his product. He said 'they.' He talked about them in third party.” said Green.
Two months prior to her complaint, Atlanta's general employee pension board, which handles about a billion dollars in pension funds, had voted to approve Gray’s recommendation to invest $28 million in the new fund - a fund, Green later discovered, the financial advisor owned himself.
“I had no clue it was him," said Green. "The nondisclosure part is really horrible to me. You cannot ask me for 28 cents and not tell me what it’s for.”
Retired classroom teacher Gregory Nash was another board member unaware of Gray’s ownership stake. Nash said even if Gray had disclosed his affiliation before the vote, he still would have thought it was a clear conflict of interest. He said a financial advisor is supposed to be impartial.
”If he had disclosed it, I still would have voted against it, because who’s watching the hen house if you’re going to be a manager and the consultant,” said Nash.
Larry Gray did not respond to requests for comment for this story.
In any case, once Gray’s affiliation came to light, Green, Nash, and board chair Alfred Berry attempted to reverse the decision to invest in Gray's fund, but they were outvoted by a bloc composed partly of officials in the mayor’s administration, including Jim Beard, the city’s chief financial officer.
This summer, Beard told the Atlanta Journal-Constitution he didn’t see any conflict investing in a fund owned by the board's financial advisor. In fact, he said Gray having “skin in the game” would be beneficial.
Last month, when pressed on the issue, Mayor Reed for the first time publicly disagreed with Beard and said he was troubled by Gray’s alleged misconduct. He vowed to investigate the matter and render a decision by Sept. 2nd.
That date came and went with no public comment from the mayor.
Now, in light of the SEC investigation going public, Reed said Tuesday:
"I am uncomfortable as the chief executive officer of this city with that kind of conflict regarding funds. For me, after all the work that we have done with pension reform and changing our behavior in the pension space, I’m not going to allow any appearance of conflict to stand and I’m going to encourage the board to take action." (Reed's written statement can be found below).
Reed spokesman Carlos Campos said the mayor believes a number of reform measures should be explored, including removing Larry Gray.
Meanwhile, a special pension board meeting has been scheduled for 10 a.m. tomorrow to address those issues. It was arranged earlier today by one of the mayor’s appointees to the board, Yvonne Cowser Yancey, the city’s human resources commissioner.
Notably, Yancey was a key vote in upholding the decision to invest in Larry Gray’s fund. She also voted in favor of a resolution distancing the board from Angela Green's complaint with the SEC.
Mayor Reed statement, emailed Wednesday, on Atlanta's pension boards:
The solvency and stability of the City of Atlanta’s pension funds has been a top priority for my Administration from day one. In mid-August, when I learned of the concerns raised about potential conflicts and lack of disclosure involving the investment advisor to the city’s three pension funds, I made a clear statement that conflicts will not be tolerated.
As a result, within three weeks, City of Atlanta CFO Jim Beard made a request to the board to issue an addendum to the currently open General Employees’ Pension Fund request for proposals for advisory services. That addendum strictly prohibits conflicts and requires full disclosure of any and all professional or financial interest that could create a conflict, perceived or real.
The city’s Office of Procurement issued that addendum on Monday, September 23, 2013.
Since September 16, City of Atlanta Human Resources Commissioner Yvonne Cowser Yancy, my designee on the pension boards, has been requesting a special called meeting of the General Employees’ Pension Fund board to consider the Board’s options to eliminate conflicts, or any appearance of conflicts, and address concerns surrounding the financial management of current advisory and alternative investment agreements. This meeting is scheduled for Thursday, September 26 at 10 a.m.
Moreover, it is my recommendation that the boards of the police and fire pension funds should also convene a separate meeting to consider similar action.
The pension reform legislation we passed in 2011 put us on the path towards financial solvency of the funds, while being mindful of our responsibility to taxpayers who fund the pension system and without breaking faith with the public servants who have dedicated their lives to the City of Atlanta. It is time for these three independent boards to act decisively to address any issue which creates an apparent or actual conflict.