A SCHotline, Grand Strand Daily Exclusive
By Paul Gable
What happens when a newly elected South Carolina official tries to bring openness and accountability to the management of the state’s retirement system investment commission?
He finds himself in the news after “documents” are leaked, to the Associated Press, in which a possible “pay to play” scheme is mentioned and a SLED investigation is requested by the SC Attorney General’s office.
Looking at it another way, S.C. Treasurer Curtis Loftis finds himself in a political knife fight for trying to buck South Carolina’s “good ol’ boy” system.
Loftis has been a critic of the management of the state’s pension fund for much of his 13 months as treasurer. On January 31, 2012, Loftis outlined problems associated with the pension fund during testimony to the Senate Finance Retirement Committee.
Among those problems, Loftis listed the $26 billion pension fund is underfunded by approximately $13 billion dollars (33%) in order to meet its future liabilities; full-time employees of the pension system have risen from three in 2006 to 23 currently; investment management fees have rocketed from $31 million in 2005 to $343 million 2011 and the fund has consistently underperformed with respect to similar pension funds in other states over the past five years.
One day later, the Associated Press broke the story “Pay for Play scheme probed at state’s $25 billion retirement system”. The first paragraph said SLED had launched an investigation while the second paragraph read, “The investigation was started after at least two financial management firms said they were promised they could manage a piece of the retirement fund, earning lucrative fees, if they paid money to a friend of state Treasurer Curtis Loftis.”
The documents, linked at the bottom of this story, date back to November 15, 2011, a time when retirement system CEO/CFO Robert Borden was under fire from Loftis for his outrageous salary ($485,000 per yr.) and Lamborghini driving flamboyancy while overseeing the underperforming agency. Borden resigned the next month after five years on the job.
And here’s one of my favorite parts. Loftis, a member of the SCRSIC, was not allowed to have documentation of Borden’s hotel, travel and entertainment expenses without filing a Freedom of Information Act request to the commission to produce them. This FOIA delay made sure Loftis would only see what information Borden and his commission cronies wanted him to see.
Over Loftis’ objections, the SC Retirement System Investment Commission acted on a recommendation by Chairman Allen Gillespee to give Borden a bonus of $80,000 upon his departure.
Why does this smell so bad? The investment commission allegedly received two sets of phone call notes from 11/15/2011 transcribed by Ashli Aslin (Doc. A below) and Rhett Humphreys (Doc. B). Both Aslin and Humphreys are employees of New England Pension Consultants, an investment firm with connections to the SCRSIC. Additionally, Humphreys was Borden’s number two man when both worked for the Louisiana state employees retirement system prior to Borden coming to South Carolina and Humphreys moving to NEPC.
While many names are redacted from the two documents, the only name to remain unredacted in the two documents is Mallory Factor, a friend and supporter of Loftis. Factor is an investment consultant located in Charleston for the past five years after a long career in New York City. Why is Factor’s name the only one not redacted in the documents?
The two sets of phone notes allegedly prompted the investment commission to ask its attorney to contact the Office of the Attorney General (Doc. C). After receiving the SCRSIC letter, John McIntosh of the Attorney General’s office sent a letter to SLED chief Mark Keel requesting an investigation of the “pay to play” scheme (Doc D).
Pay to play is traditionally defined as: the payer (an individual, business, or organization) makes campaign contributions to public officials, party officials, or parties themselves, and receives political or pecuniary benefit such as no-bid government contracts, influence over legislation, political appointments or nominations, special access or other favors.
According to a source familiar with the investigation, it took SLED over two months to contact Factor whom it interviewed for approximately one hour last Thursday (2/2). Why did it take so long for SLED to contact Factor and why did this occur after the story leak of a supposedly two month old investigation?
The Associated Press story says the documents show two investment companies reported suspicious calls that sought payment to Factor. This is not true. Both sets of notes mention a “third party investment firm” but it is certainly not clear whether it is the same firm or a different firm in each set of notes. In fact, it is even possible that Aslin’s notes are nothing more than a shortened compilation of Humphreys’ notes. Both work at New England Pension Consultants and we only have their story to back up that either received a phone call at all.
What exactly in either of these sets of notes justifies a conclusion that there are possible violations of law or that the phone conversations even occurred?
Only Humphrey’s notes mention a payout to Factor. Humphreys’ notes also mention a call to RW, believed to be SCRSIC Vice Chairman and Chairman Emeritus Reynolds Williams, who was chairman when Borden was hired. Williams last week was quoted in The State newspaper as saying “there should not be a politician on the commission,” an obvious reference to Loftis.
What Williams, Gillespee, McIntosh and Co. failed to remember here is neither Factor nor Loftis could orchestrate a pay to play scheme with the investment commission. Factor is in no way a public figure and Loftis is merely one vote on the commission as shown by his failed attempt to deny a bonus to Borden. Neither have the authority or control to guarantee “play” if “pay” is received. Loftis is the political target and Factor is collateral damage in today’s parlance.
Williams was friends with Borden. Borden worked with Humphreys in Louisiana. Borden goes to SCRSIC and Humphreys goes to NEPC, a firm that has connections with the SC pension fund.
Loftis becomes dissatisfied with the performance of the retirement fund under Borden’s management. Borden loses his high paying job. Humphreys with Borden’s ouster sees the loss of a $600,000 fee from the SCRSIC in the near future.
SLED under Haley appointee Mark Keel commences an investigation of Loftis and Factor based on very shaky “evidence” in the alleged documents.
It’s a perfect South Carolina political storm with SLED, as usual, off investigating the wrong allegations and the wrong people, successfully performing its political function in the state while ignoring its supposed law enforcement function.
Haley worries about Loftis being a threat to her re-election as governor as she well should. In his election victory for Treasurer, Loftis captured all 46 South Carolina counties, winning a whopping 62 percent of the vote.
Paul Gable is a veteran investigative reporter residing in Horry County, South Carolina and is the current editor of the Grand Strand Daily an online magazine featuring all things local and political.