STUMP » Articles » Public Pensions and Corrupt Officials: A Marriage Made in Hell! » 22 December 2016, 10:00

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Public Pensions and Corrupt Officials: A Marriage Made in Hell!  


22 December 2016, 10:00

I was going to do another numbers-dive today, but: 1. I’m still suffering winter crud and 2. the following story re: a NY public pension official came over my transom this morning, and it’s too good to ignore.

UPDATE: Mark Glennon reminds me Corruption and Pension Debt Go Hand-in-Hand – a study from Morningstar in January 2015. New York, Illinois, California, and New Jersey — represent!


Note the “allegedly”. No fake news here!

Official Took Bribes to Steer Pension Funds to Brokers, U.S. Says:

A former portfolio manager who was responsible for investing $53 billion in New York State employee retirement funds took over $100,000 in bribes in exchange for steering more than $2 billion in fixed-income business to two brokers, earning them and their firms millions of dollars in commissions, federal authorities said on Wednesday.

They said the bribes paid to the former manager, Navnoor Kang, included a $17,000 Panerai watch, expenses associated with a ski trip to Utah, and other travel, as well as dinners at New York restaurants and tickets to the United States Open tennis tournament and Broadway shows. Crack cocaine and cash were also included, according to the indictment unsealed in Federal District Court in Manhattan.

The authorities also accused Mr. Kang, 37, and the two brokers — Gregg Schonhorn, 45, and Deborah Kelley, 58 — of agreeing to testify falsely when the Securities and Exchange Commission began investigating the matter last year. The S.E.C. filed a civil complaint against the three defendants on Wednesday.

The fund, officially called the New York State Common Retirement Fund, manages about $184 billion in state employee retirement money and is overseen by the state comptroller, Thomas P. DiNapoli.

At the news conference, Mr. Bharara noted that it had been six years since a former state comptroller, Alan G. Hevesi, pleaded guilty in a pay-to-play scheme involving the fund.

“We allege that pay-to-play is back at the New York State Common Retirement Fund,” Mr. Bharara said.

Mr. DiNapoli said in a statement that the fund “has absolutely no tolerance for self-dealing, and we are outraged by Mr. Kang’s shocking betrayal of his responsibilities.” Mr. Kang was fired in February, the statement said.

According to the authorities, Mr. Kang, before going to work for the fund, had been fired in 2013 from a position as a vice president and fixed-income trader with a “prominent asset management firm” (the complaint does not identify it), for violations of the firm’s compliance and ethics policies.

He was hired by the New York State fund in January 2014 as its director of fixed income, the S.E.C. complaint said, adding that Mr. Kang lied during his job interview “about the reason he was terminated” from his previous job. A fund spokesman said on Wednesday, “We are currently doing a thorough review of his hiring process.”

The indictment charged that Mr. Schonhorn spent thousands of dollars on Mr. Kang at strip clubs, for hotel reservations and bottle service at nightclubs, and gave him money for prostitutes. They coordinated the bribes through the internet messaging service, WhatsApp, in an effort to keep their communications from being monitored by law enforcement, the indictment said.

The indictment also stated that Ms. Kelley paid for various expenses associated with a trip she and Mr. Kang took to New Orleans, including for Mr. Kang’s ticket to a Paul McCartney concert, and for the ski trip to Park City, Utah.

Okay, maybe not hookers and blow strictly speaking, but so much more!

A few comments about the NY state pension funds, though — unlike many other public pensions, which tend to have multiple fiduciaries in the form of a board of trustees — there is a single fiduciary for these billions of dollars.

That’s right, the NY State Comptroller is the sole fiduciary of these funds.

That’s not asking for corruption at all, is it?

Blast from the past: Former Comptroller Alan Hevesi Sentenced To Up To Four Years In Prison For Role In Pay-To-Play Pension Fund Kickback Scheme, from April 2011.

As of 2014, 4 states had a sole fiduciary for state pension funds: Connecticut, Michigan, New York, and North Carolina.

According to this paper from the Manhattan Institute, March 2016, New York is more extreme than that:

At one extreme lies the New York Common Retirement System, which is overseen by a sole fiduciary: the state comptroller, who is a partisan, elected official. Connecticut, Michigan, and North Carolina have oversight boards but vest fiduciary authority solely with a single official.

Well, one can do that, and then appoint a federal investigator to watch that single official with an eagle eye.

Or one can perhaps set up better governance.

Having been a keen observer of NY state politics for over a decade, this is how it works in my state: you’ve got a bunch of Democrats scrapping to rise in the cursus honorum, and there are a few ways to claw your way to the top. One way is to catch out your political opponents in criminal activity (heck, recall that Rudy had been a federal prosecutor).

It has been the finance-side people against the law-side people, going back to Spitzer. And we know how well that worked for him.


Most of the criminal official stories relating to pensions has to do with whether said officials will get their pensions. Some prior posts:

That last one was from November 2015, about Dennis Hastert. That had to do with him keeping his federal pension. But you see, he had been an Illinois state official, too (and it was his Illinois-related “service” that got him in trouble… but they couldn’t convict him of that due to statute of limitations, etc).

Well, I’ve got a more recent story on Hastert:

Imprisoned Hastert fights for tax-covered pension:

Dennis Hastert is serving a 15-month prison term in a hush-money case that stemmed from his sexual abuse of students when he taught at an Illinois public school over 35 years ago. The ex-U.S. House speaker is now pointing to a technicality to argue that a state body should restore his $17,000-a-year teacher’s pension that it yanked after his April 27 sentencing.

A recent letter from Hastert’s lawyer to the agency overseeing the pensions notes his conviction was not for sexual abuse when he was at Yorkville High School from 1965 to 1981: It was for one count of violating banking law as Hastert withdrew cash from 2010 to 2014 as he sought to pay one victim $3.5 million to ensure his silence. On those grounds, the letter argues, his teacher’s pension can’t be revoked.

A look at the 74-year-old Republican’s bid to hold on to his pensions:

A: What pensions did Hastert receive prior to his conviction?

Q: Hastert received tax-covered pensions totaling about $120,000 a year. In addition to the teacher’s pension, Hastert also received a $28,000 pension for his five years in the Illinois General Assembly starting in 1981 and a $73,000 pension for his 20-year stint in Congress. By law, those can only be revoked if a lawmaker’s crimes were linked to their time as lawmakers, so neither seemed in jeopardy. But in October, the board of the General Assembly Retirement System voted to suspend Hastert’s legislative pension. It said it’ll watch what happens with Hastert’s bid to restore his public schools pension before deciding whether to revoke the legislative pension for good. There’s no sign his U.S. House pension is at risk.

Q: What is Hastert’s argument for restoring his teacher’s pension?

A: State law is clear that pensions can be revoked for serious crimes teachers committed as teachers. The revocation of Hastert’s teacher’s pension by the Teachers’ Retirement System, or TRS, was “improper, invalid and unconstitutional” in part because he was charged with banking crimes that occurred over three decades after he was in teaching, Mark DeBofsky wrote in an August 29 letter released this month through an open-records request. It also challenges an order that Hastert pay back $222,000 he already withdrew in teacher’s pension money.

In the lead-up to sentencing, prosecutors disclosed in court filings that Hastert abused at least four teenage boys, including in a school locker room. At sentencing, U.S. District Judge Thomas M. Durkin dubbed Hastert “a serial child molester.”

Had Hastert been convicted of abusing those students, there would be no question that withdrawing his pension was legal. Prosecutors made clear that, if they could have charged Hastert with sexual abuse, they would have. But the statute of limitations expired decades ago, so the only option for offering those abused some semblance of justice, prosecutors said, was to charge him with comparatively mundane banking violations.

And we give politicians passes on banking violations, right? We can only expect them to screw around with banks….

(okay, let’s drop that one)


It looks like I haven’t had a criminal official-seeking-pensions round-up since January, so let’s go crazy!

And those are only the ones which came to my attention in 2016.

I am not claiming that to be an exhaustive list.

Besides, there’s still a little more than a week left to the year. I bet a few more criminal officials can get caught up in the fun before 2017.

On the other hand….


Brighten up – take heart from the Fattah and other cases, as the Better Government Association notes – PENSION TERMINATIONS RELATED TO FELONY CONVICTIONS RARE:

Narrow criteria required to terminate public pensions have led to just eight such forfeitures for corrupt former [Chicago] city workers since 2006 at the city’s largest pension fund for municipal workers.

John Bills Jr. a former city transportation department official at the center of a red-light camera scandal, lost a six figure annual pension last month after a federal jury convicted him on multiple counts of bribery and extortion. But such pension forfeitures may be more the exception than the rule in a city [Chicago] with a well-honed reputation for corruption.

Only nine former city employees have had pensions terminated by the Municipal Employees Annuity and Benefit Fund for felony convictions between 2006 and today, according to records obtained by the Better Government Association through an Illinois Freedom of Information Act request. And one of those termination actions was later overturned by a court.

Some of the forfeitures that have stuck include charges related to the scandal plagued Hired Truck program which more than a decade ago saw transport work steered to politically connected firms, as well as another scandal tied to the Department of Building and Zoning dubbed Operation Crooked Code.


Jon Burge, a former Chicago Police Commander connected to a campaign of torture in the 1970s and 80s, is scheduled to collect more than $50,000 from the Chicago Police pension this year. Burge was allowed to collect his pension after conviction because the board deadlocked 4-4 on whether his crimes were committed in the course of his municipal duty.

Chicago set up a $5.5 million fund in 2015 to pay victims of Burge’s torture, and the city spent close to $100 million on legal fees and settlements related to his deeds.

Attorney General Lisa Madigan filed a lawsuit against Burge in 2014 to end his pension benefits. The Illinois Supreme Court decided that Madigan did not have the legal authority to challenge the pension board’s ruling. A lawpassed after that decision, will allow the A.G. to challenge the pension status of pensioners convicted of a felony, but will not apply to Burge.

So… even in a case as heinous as Burge, where it’s pretty damn clear his crimes were connected to his official position, can keep getting his pension, your chances are good to hang onto your own ill-gotten gains!

Merry Christmas!

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