Investigator releases findings

A pension investigator believes the Firefighters Pension Board could have been underperforming by at least 1% annually for the past 10 years, due to conflicts of interest by its investment consultant. The underperformance, released in a report last week, could have culminated in millions of lost money for all three of the town’s pension plans.

Edward Siedle, hired by the firefighters to investigate its pension plan for any wrongdoing, submitted an interim report to the board Wednesday, Feb. 23 that revealed “longstanding conflicts of interest involving the fund’s investment consultant.”

Siedle points to 2004 documents that reveal that pension investment manager Morgan Stanley admitted that $209,000 in payments made to itself might have created a conflict of interest, because the company selected investment managers that may have benefited from dealings with the town’s pension plans.
Such a conflict of interest, Siedle said, is called “proprietary trading,” and is not allowed as part of the contract with the pension plan. Siedle explained last week that proprietary trading was akin to the trustee of a house selling it for his or her own benefit.

The 2004 transaction, Siedle said, could have resulted in $1 million in accrued benefit to Morgan Stanley.
Siedle said the investigation will revolve around whether that $1 million should be put back into the pension fund.

“A kickback to the investment consultant or gatekeeper of a fund may result in harm significantly greater,” said Siedle, explaining that the issue could result in a 1.3% annual underperformance of the plan and 13% compounded over a 10-year period. “That’s a significant sum in the neighborhood of $13 million.”

Siedle states that Morgan Stanley also never advised the police and general employee pension boards, which no longer employ Morgan Stanley, of that potential conflict of interest at that time.

Siedle also noted that Firefighters Pension Board Attorney Robert Sugarman investigated payments made by the fund’s investment managers to Morgan Stanley from August 2004 through March 2005.

But Siedle claims that no independent analysis has been performed yet to support a statement made by Sugarman in a Dec. 3, 2004, letter claiming there was no correlation between the payments made to Morgan Stanley and any compensation received by Morgan Stanley managers.

Sugarman, meanwhile, has begun his own investigation of his law firm’s prior actions as a result of Siedle’s report.

Siedle’s report states that “no investigation was undertaken as to whether the payments disclosed in 2004 were properly characterized or whether any additional payments may have been made to Morgan Stanley by the fund’s managers.”

“Whether payments disclosed in 2004 were properly categorized have not been investigated,” Siedle told the board. “Because consultant conflict can result in trader harm, no investigation has been taken to date about potential harm.”

Siedle said the scope of the investigation will likely take an additional month or longer.

“To understand what’s going on here now takes hours and hours,” Siedle said. “It’s a complex issue, and it’s just the beginning of an inquiry.”

Firefighters Pension Board member Gerald Feder, however, expressed hesitation with the investigation, which he has opposed from the beginning.

Feder noted that only two pages of the 10-page interim report dealt with the firefighters pension plan; the rest of the document cited past cases and examples relating to other pension funds.

“I’m an expert now on everything but the fire fund,” said Feder.

Feder questioned why Siedle’s information was presented to the board less than 24 hours before the meeting. He also noted the timing of the presentation before the firefighters’ contract-impasse hearing with the Town Commission March 2.

Siedle, however, denied having any part in the other issues facing the firefighters and the town.

“The timing of this investigation may or may not be unfortunate because there are other issues swirling in the air, but it has nothing to do with what I’m doing,” Siedle said.

Firefighters Pension Board Chairman Keith Tanner, meanwhile, praised the interim report and said the investigation is proving what he already knew.

“This certainly raises questions I always knew were there and maybe the other pension boards didn’t,”
Tanner said. “I still think there were some things going on that should not have been going on. But we need to get to the bottom of this.”

Siedle agreed and said he would report back to the board in the coming weeks with more findings.

“There shouldn’t be any doubt this is a very serious issue that affects the integrity of the entire fund and, hopefully, the other funds agree this should be investigated going forward,” Siedle said.

It’s up to the Firefighters Pension Board to decide how far the investigation should go and if actions should be taken, which might require lawsuits and taxpayer money to try and retrieve any money from Morgan Stanley that Siedle believes the pension fund may have lost. The police and general employees pension boards will also likely consider whether they should pursue an investigation or try and recoup funds as a result of Siedle’s preliminary findings.

PLANS REBOUNDING?
Longboat Key Police Capt. and Police Pension Board Chairman Steve Mislyan sent a letter to Mayor George Spoll Feb. 24, reporting that the Police Pension Plan has reported an 11.04% return for the year ending Dec. 31.

Investment returns obtained by the Longboat Observer show that the Firefighters Pension Plan reported a 12.07% return, and the General Employees Pension Plan reported a 12.71% investment return in 2010.
Those numbers exceed the 8% assumption rate that’s used to monitor the progress of all three town pension plans.

Contact Kurt Schultheis at [email protected]