• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

PRESSLED

Your Leading News Source

PRESSLED
Your Leading News Source

  • Home
  • BUSINESS
  • MONEY
  • POLITICS
  • REAL ESTATE
  • US
  • Meet the Reporters
  • About/Contact

FBI probe of massive Pa. pension fund seeks evidence of kickbacks or bribery

May 23, 2021 by Staff Reporter

By Angela Couloumbis of Spotlight PA, and Joseph N. DiStefano and Craig R. McCoy of The Philadelphia Inquirer

Spotlight PA is an independent, non-partisan newsroom powered by The Philadelphia Inquirer in partnership with PennLive/The Patriot-News, TribLIVE/Pittsburgh Tribune-Review, and WITF Public Media. Sign up for our free newsletters.

Federal prosecutors investigating Pennsylvania’s $64 billion public school pension fund are looking for evidence of kickbacks or bribery as they explore why the plan exaggerated investment returns and spent millions to amass real estate in Harrisburg.

Subpoenas reviewed by Spotlight PA and The Philadelphia Inquirer demand information from the fund itself, its executive director, and at least three other senior executives. The documents lay bare the scope of the probe and reveal that prosecutors and the FBI are investigating possible “honest services” fraud and wire fraud.

Under a key 2010 U.S. Supreme Court ruling, federal prosecutors would need proof of illegal payments to charge state officials with the crime of not providing honest service, criminal-law experts say. Wire fraud involves using a phone or email to commit crimes.

The subpoenas sought grand jury testimony from fund executive director Glen Grell, chief financial officer Brian Carl, deputy chief investment officer Thomas Bauer, and chief auditing officer Mei Gentry. No one, including those served with subpoenas, has been accused of wrongdoing.

The subpoenas, dated March 24, were signed by Assistant U.S. Attorney Michelle Morgan, a 20-year Justice Department prosecutor appointed last fall to head the elite public corruption unit of the U.S. Attorney’s Office in Philadelphia.

FBI agents have also been carrying out interviews, documents show, in the probe of PSERS, the Pennsylvania Public School Employees’ Retirement System. The pension fund, one of the nation’s largest, sends more than $6 billion in pension checks each year to 265,000 retired teachers and other former school employees.

The investigation is also probably “benefiting from the cooperation of an insider,” a defense lawyer has told the fund’s leaders.

Evelyn Williams, a spokesperson for the pension system, said it would have no comment on the probe. The U.S. Attorney’s Office has also declined to discuss the probe.

So far the investigation has forced the plan to commit more than $1 million to hire three outside law firms and a consultant to oversee its highly paid investment office.

One law firm, Philadelphia’s Morgan Lewis, quickly warned the fund that its members could face “catastrophic” consequences, including the immediate taxation of all future benefits, unless it corrected errors in its performance results.

Another firm, Pillsbury, of Washington, D.C., was the one that warned the fund about the possible informant within its ranks. It did so in a pitch to be hired.

William M. Sullivan Jr., head of Pillsbury’s corporate investigations and white-collar defense practice, advised that the criminal probe could pose “real and significant risks for PSERS board members.”

Among other issues, he said the FBI appears to be pursuing a possible cover-up — or, as he put it, “potential concealment of material information.”

Sullivan, a former federal prosecutor, said he has been “uniquely successful … in persuading government and regulatory authorities to decline to pursue criminal investigations.” He also promised Pillsbury could shield board members “from aggressive criminal investigative scrutiny.”

He called for the fund to cooperate with law enforcement, to conduct its own “credible” inquiry — and to quickly interview witnesses “to learn what they may have told the FBI.” Sullivan, who briefed the board Wednesday night in a session closed to the public, declined comment for this article.

PSERS hired his firm, along with Morgan Lewis and Womble Bond Dickinson, which has offices in the United States and the United Kingdom. Womble is being paid up to $367,500, while the lead attorney for Morgan Lewis charges $1,210 an hour — a discounted rate, according to its contract with PSERS, which is public. Total fees for Pillsbury and Morgan Lewis aren’t yet disclosed.

The fund has also hired a Seattle consultant, Verus Advisory Inc., for $810,000 to help its big investment staff during the crisis. The 50 members of the fund’s in-house investment shop are paid $9.2 million yearly in salaries. Its chief, James H. Grossman Jr., earns $485,421, the most in state government.

Some fund staff have also reportedly hired private lawyers.

As The Inquirer has previously reported, prosecutors are digging into two issues — the board’s vote in December to adopt an overstated figure for its investment performance, and its $5 million appropriation in 2019 to buy real estate near its headquarters in the state capital. It’s unclear whether the two issues are related.

Jackie Lutz, the retirement system’s chief counsel, told PSERS employees on April 8 to safeguard all documents or computerized information related to those two matters. The subpoenas state explicitly that those are the two issues under investigation.

Her instruction came more than two weeks after federal authorities demanded those records. PSERS officials would not comment on that delay.

The board’s vote in December was highly significant because the agency changed its performance results to boost investment returns. The change was just high enough to spare 100,000 working teachers from having to pay more into the fund. Under state law, such payments are tied to performance results. Instead, only taxpayers were to face an increase.

Grell and Grossman insisted last year that the number was accurate, even though then-State Treasurer Joe Torsella, a fierce critic of the fund’s management, questioned why PSERS was retroactively improving its results.

But this spring, the panel disavowed the number, redid the calculation, and adopted a new lower figure — one that triggered higher payments into the plan by newer teachers and school employees. The bigger bite for them and taxpayers takes effect July 1.

Fund documents show that the board is now pondering such questions as whether the botched number was not simply a mistake, but was manipulated by staff or consultants “to achieve a certain outcome” and whether some officials knew about the flawed calculation but kept it secret.

Another issue concerns an outside consultant, ACA Group of New York, which was hired to check the calculation and whether its review was deliberately handcuffed

Before the board reversal, pension officials said repeatedly in official documents that ACA had verified the number. ACA then pushed back, insisting that it was hired only to spot-check the math.

The grand jury subpoenas demand that the plan provide “a roster of the individuals involved with the calculation” as well as “final versions, draft versions and revisions” of key documents used to reach it. It also seeks material given the fund by three financial consulting firms who played roles in the calculation debate.

In interviews last week, tax experts said that Morgan Lewis, in an April 2 letter, was indeed pointing to a major risk. If the IRS was to “disqualify” the pension plan because it failed to address an incorrect performance figure, working teachers and others who have been paying into the fund would suddenly face taxation on those payments.

The subpoenas also demanded records concerning a series of Harrisburg buildings and lots bought by PSERS. The subpoenas identified them as the former Patriot-News building at 812 Market St., two other government-owned buildings on Market Street, and three parking lots on 10th Street. The real estate is a short walk from the PSERS office.

The Patriot-News building, on the market since 2010, was sold in June 2017 to a New York commercial realty company and resold in December 2017 to a Texas-based firm which later revealed it purchased the property on PSERS’ behalf.

The fund bought that and the other properties between 2017 and 2020 for a total of $2.2 million. It spent an additional $785,000 last year to buy two more lots on Market Street, though those weren’t named in the subpoenas. Those last purchases were approved in a session closed to the public and media.

In all, the board approved $13.5 million to buy and develop the properties, including the 2019 installment of $5 million cited in the subpoenas. While the fund has demolished the old Patriot-News buildings and spent money on maintenance, total spending is unknown.

Though PSERS has said little about the purchases, internal documents say that it planned to come up with a master plan for the site. In addition, the documents say PSERS’s legal staff had negotiated development agreements for the properties.

In 2019, Grell told the board that the fund might partner with Harrisburg University of Science and Technology to build a mixed-use tower. A university spokesperson said Friday that nothing had come of that.

While the federal crime of bribery generally can be brought only against federal officials, U.S. prosecutors pursuing state officials sometimes charge them instead with honest-services fraud. The law defines this as denying people the “intangible right of honest services.”

Up until a decade ago, federal prosecutors seeking to charge corrupt state officials with honest-services fraud could do so when a suspect had a hidden conflict of interest, even if no illegal payments could be shown.

However, the Supreme Court, concerned about federal overreach and a nebulous statute, has stricken conflicts of interest as grounds for such a case, according to experts including Michael A. Schwartz, a former federal anticorruption prosecutor in Philadelphia. He now heads the white-collar and government investigations practice at the Troutman Pepper law firm.

The high court ruling involved an executive of the discredited energy firm Enron. Honest-services cases can be brought against officials and private executives.

WHILE YOU’RE HERE… If you learned something from this story, pay it forward and become a member of Spotlight PA so someone else can in the future at spotlightpa.org/donate. Spotlight PA is funded by foundations and readers like you who are committed to accountability journalism that gets results.

Originally Appeared Here

Filed Under: REAL ESTATE

Primary Sidebar

More to See

Google suffers setback in UK over abuse of ad tech dominance

The UK’s antitrust watchdog started a new investigation of Alphabet Inc.’s Google, over suspicions it may have abused its dominant position across its … [Read More...] about Google suffers setback in UK over abuse of ad tech dominance

Nvidia’s bounce could be a hint that the market has fallen enough for now

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Dip-buyers have … [Read More...] about Nvidia’s bounce could be a hint that the market has fallen enough for now

For New York Tech, a new marketing campaign

New York Tech has launched a new integrated marketing campaign, appearing on Long Island and in New York City. The “A Place for You” campaign includes … [Read More...] about For New York Tech, a new marketing campaign

Privacy Policy | Terms and Conditions | About/ Contact
Copyright © 2022 · PRESSLED · As Amazon Associates we earn commissions from qualifying purchases · Log in

We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept All”, you consent to the use of ALL the cookies. However, you may visit "Cookie Settings" to provide a controlled consent.
Cookie SettingsAccept All
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checkbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT