IRS Delays New Rules for Dark Money Groups

IRS Delays New Rules for Dark Money Groups

The agency has pushed back indefinitely a hearing on new regulations for social welfare nonprofits that spend money on politics.

By Theodoric Meyer
May 23, 2014

After intense criticism from both ends of the political spectrum, the Internal Revenue Service has delayed indefinitely proposed rules that would have imposed new limits on social welfare nonprofits, which have pumped hundreds of millions of dollars from anonymous donors into recent elections.

The agency said yesterday it would postpone a hearing on the proposal it released in November defining more clearly what constitutes political activity for such groups, and would revise the plan to reflect some of the more than 150,000 comments it triggered.

Officials put no timeline on the process, disappointing those who had hoped the new regulations might kick in before this year’s mid-term elections.

“I think it’s unfortunate that new rules will be delayed even further and that we’re going through another election cycle” without them, said Paul S. Ryan, senior counsel with the Campaign Legal Center.

Others called the delay a prudent step that would give the IRS an opportunity to get a crucial change right.

“They’re not going to put out some slapdash rule just to check it off their list,” said John Pomeranz, a Washington lawyer who works with nonprofits that spend money on politics. He doesn’t expect the agency to finish the rules any time soon. “I think we’ll be lucky if they’re in place for the 2016 election.”

Social welfare nonprofits have poured money into politics since the Supreme Court’s Citizens United decision in 2010, which allowed corporations, unions and nonprofits to spend unlimited money on elections.

Social welfare nonprofits spent more than $256 million in the 2012 cycle alone, according to the Center for Responsive Politics. Campaign finance watchdogs have viewed their rise with concern, fearing the influence of so-called “dark” money from secret donors, and had called for more oversight from the IRS.

Under IRS regulations, the groups can spend some of their resources on politics, but must devote themselves mostly to social welfare to keep their nonprofit status. But the rules defining what is and isn’t politics are murky.

Late last year, the IRS moved to clarify the issue, but its proposal came under fire from both the left and the right.

Conservatives complained that the rules would stifle political speech. The American Civil Liberties Union chafed at a provision in the proposed rules that would prevent nonprofits from backing ads that even mentioned politicians in the two months before a general election.

“We have no doubt that the Service is acting with the best of intentions, but the proposed rule threatens to discourage or sterilize an enormous amount of political discourse in America,” the ACLU said in its written response to the proposal.

The plan was also criticized for impeding nonpartisan election work such as voter registration drives and get-out-the-vote efforts.

The IRS, still facing fallout from accusations that it singled out the applications of conservative nonprofits for special scrutiny in the run-up to the 2012 election, decided it would make revisions.

“Given the diversity of views expressed and the volume of substantive input, we have concluded that it would be more efficient and useful to hold a public hearing after we publish the revised proposed regulation,” the agency said in statement.

Theodoric Meyer is ProPublica’s reporting fellow. He was previously an intern at The New York Times and The Seattle Times.

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Oregon County Bans GMO Cultivation

Oregon County Bans GMO Cultivation

By Sarah Small
Food Tank
May 21, 2014

On Tuesday, after a two year battle, voters in Jackson County, Oregon, passed ballot measures banning genetically modified organism (GMO) crops. The fight began when organic farmers in Jackson County learned agribusiness, Syngenta, was growing genetically modified (GM) sugar beet seed resistant to Roundup in local fields.

Despite the US$1 million campaign by seed companies, the measure passed by a two-to-one margin. Local farmers were the main driving force of the campaign. According to The Oregonian, the measure has raised debate on multiple issues including; property rights, land owner rights, and control of resources.

“This is really an issue where local family farmers don’t believe the state has done a good job protecting their interests,” said Ivan Maluski, director of the Molalla-based Friends of Family Farmers, which supports the measure. “There’s lax oversight on the federal and state level. This local effort is important because it’s a way for local growers to protect their property rights from genetically engineered pollen contaminating their seed crops.”

A similar measure in nearby Josephine County is also up for vote and expected to pass. However, because of a law passed last year in Oregon preventing local government from regulating GM crops, the measure will likely be challenged in the courts. Jackson County was uniquely positioned since the initiative was started before the new law.

Chuck Burr, president of the Southern Oregon Seed Growers Association, said, “This vote is going to make Jackson and Josephine county one of the most valuable seed-growing regions in the entire country, period.”

The focus remains on Jackson County since it may be the sole opportunity in Oregon for an enforceable measure and would be the first and only county in the U.S. to enforce an outright ban on GMO cultivation.

Sarah Small is a Research Associate for Food Tank: The Food Think Tank, highlighting solutions to our broken food system. Sarah attended Kalamazoo College in Michigan and received her BA in Biology and Art. She went on to graduate from DePaul University with her MS in International Public Service. Sarah has traveled to many parts of the world, working to set up medical clinics, filming documentaries, practicing yoga, developing her cross cultural understanding, and building community centers. To contact her, email

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Mexico and Monsanto: Taking Precaution in the Face of Genetic Contamination

Mexico and Monsanto:  Taking Precaution in the Face of Genetic Contamination

By Timothy A. Wise
Food Tank
May 21, 2014

To listen to the current debates over the controversial requests by Monsanto and other biotech giants to grow genetically modified (GM) maize in Mexico, you’d think the danger to the country’s rich biodiversity in maize was hypothetical. It is anything but.

Studies have found the presence of transgenes in native maize in nearly half of Mexico’s states. A study of maize diversity within the confines of Mexico’s sprawling capital city revealed transgenic maize in 70 percent of the samples from the area of Xochimilco and 49 percent of those from Tlalpan.

Mexico is the “center of origin” where maize was first domesticated from its wild ancestor, teocinte. The country is arguably the last place you’d want to risk the possibility that its wide array of native seeds might be undermined by what indigenous people have called “genetic pollution” from GM maize.

Last October, a judge issued an injunction putting a halt to all experimental and commercial planting until it can be proven that native maize varieties are not threatened by “gene flow” from GM maize. The precautionary measure comes more than a decade too late.

In 2001, US-based researchers discovered the presence of transgenic traits in native maize varieties in the southern state of Oaxaca. A formal citizen complaint brought an exhaustive study by the environmental commission set up by the North American Free Trade Agreement (NAFTA). The researchers acknowledged that “gene flow” had occurred, warned, as other studies did, of more widespread contamination, and called for precautionary policies, including restrictions on imports from the United States.

The Mexican government buried the study and promptly passed a biosafety law that opened the door to GM maize.

“It is Orwellian that this history is unknown,” said Antonio Serratos, one of the researchers on the NAFTA-commissioned study, as well as the studies on Mexico City native maize. He said he was surprised by two things in Mexico City.

“First, that we found so much diversity. In an area so small, so urban, it was so unlikely,” he said. “The other surprise was finding transgenics.”

“In Mexican fields,” Serratos warned, “transgenic native maize is being created.”

That possibility did not seem to concern representatives of Monsanto Mexico, beyond a passing mention. “We are very sensitive to Mexico being a center of origin, to the cultural significance of maize,” Jaime Mijares Noriega, Monsanto’s Latin America Director for Corporate Affairs, said in the company’s Mexico City office. “But if there is pollen flow to native maize, what happens? There are very few pure landraces in Mexico today. Many have already gotten genes from hybrids, and the native seeds are preserved in gene banks.”

According to Oscar Heredia, the company’s Agronomic Regulatory Affairs officer, the company-funded field trials in northern Mexico showed minimal gene flow from GM maize to non-GM maize in bordering plots, dropping to less than 0.5 percent of plants. I asked if the company’s goal was to achieve zero percent gene flow. He said that would be unrealistic.

Indeed it would, which is why people are concerned. Serratos told me that maize pollen has been known to travel more than one kilometer.

He explained the danger:  A hectare will have about 40,000 plants. One-half a percent of that is 200 plants. Each plant has about 400 grains on a few ears of maize, with each grain pollinated separately through the plant’s silk threads. If 200 plants get some level of contamination, that can mean up to 80,000 grains. And, if any of those grains are planted as seed, they will produce pollen, even if they don’t produce usable ears of maize. That pollen travels the winds, further spreading the transgenes.

Serratos pointed out that wind-borne gene flow isn’t even the most pervasive source of contamination. Seeds travel far and wide, in farmers’ pockets. Small-scale farmers are relentless experimenters, trying every seed they get their hands on to see if it produces something useful. That’s how maize has evolved into the wide and useful range of varieties we see today. That is also how imported GM maize traveled to Oaxaca, got planted by an unwitting farmer, and spread transgenes to native plants.

I asked Monsanto officials how they expected to control this more pervasive form of gene flow. “We can’t really ensure how grains are transported and where they end up,” Heredia said.

Serratos stressed that this is precisely why precaution is warranted, why the entire country should be declared a “center of origin” for maize, with no permitted GM cultivation. Well-intentioned farmers could already be storing contaminated native seeds in their own community seed banks.

”If the seeds of maize are sold or exchanged, the contamination will grow exponentially,” he warned. “That is the point of no return.”

Timothy A. Wise is the Policy Research Director at Tufts University’s Global Development and Environment Institute (GDAE). He is currently researching agriculture, climate change and the right to food as part of a project on “A Rights-based Approach to the Global Food Crisis.”

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Federal Judge Who Halted Walker Dark Money Criminal Probe Attended Koch-Backed Judicial Junkets

Federal Judge Who Halted Walker Dark Money Criminal Probe Attended Koch-Backed Judicial Junkets

By Brendan Fischer
The Center for Media and Democracy (CMD)
May 27, 2014

The federal judge who ordered a halt to Wisconsin’s “John Doe” criminal investigation into spending during the 2011 and 2012 recall elections has regularly attended all-expenses paid “judicial junkets” funded by the Charles G. Koch Charitable Foundation, the Lynde and Harry Bradley Foundation, and other ideological and corporate interests.

On May 6, federal District Court Judge Rudolph Randa blocked an ongoing John Doe criminal probe into allegedly illegal coordination between nonprofit groups like Wisconsin Club for Growth, which spent $9.1 million on electoral ads during Wisconsin’s recall elections, and the recall campaigns of Governor Scott Walker and state senators. John Doe investigations are similar to grand jury investigations, and Wisconsin Club for Growth — and its director, Eric O’Keefe, a longtime compatriot of the Koch brothers — asked the federal court to stop the probe, alleging it violated their “free speech” rights.

Judge Randa sided with O’Keefe, and also ordered prosecutors to destroy all evidence gathered in the investigation, an extraordinary edict in a criminal case made even more astounding by the fact that it came in the context of a preliminary injunction. The Seventh Circuit has blocked this part of his ruling; an appeal of the remainder of his decision is pending.

An analysis by the Center for Media and Democracy shows that Judge Randa attended privately-funded, all-expenses-paid judicial seminars put on by George Mason University in 2006, 2008, 2010 and 2012, according to publicly-available financial disclosure forms. (The 2013 disclosure form has been requested but has not yet been publicly posted).

The George Mason University seminars are bankrolled by a long list of right-wing foundations, like Koch, Bradley, and the Searle Freedom Trust, as well as the U.S. Chamber of Commerce and corporations like BP, Exxon Mobil, and Dow Chemical. Many of these interests have long opposed limits on money in politics, although it is not known whether campaign finance reform was a topic at the seminars Randa attended.

The seminars amount to a privately-funded all-expenses paid trip for judges, with conference sponsors picking up the costs of a judge’s flights, hotel rooms, and meals. One seminar Judge Randa attended was in La Jolla, California, a swanky San Diego suburb that is home to both great golfing and Mitt Romney; the location of other seminars Randa attended is unknown. The content of the seminars has a decidedly pro-corporate bent, and the expensive gifts raise concerns about improper influence when corporate sponsors have a stake in a case before a judge. (Some reports have directly connected the trips to judge’s decisions).

No other federal district judges in Wisconsin attended the privately-funded George Mason seminars, according to the Center for Media and Democracy’s review of publicly available financial disclosure documents.

Koch and Bradley Bankrolled Junkets Randa Attended

The Judicial Conference of the United States — which oversees the conduct of federal judges — has noted that judges may be “influenced inappropriately” at the privately-funded events, and since 2007 has required that seminar organizers disclose the names of funders.

The disclosures do not specify how much each funder contributed towards the judge’s expenses and seminar costs, but for the years that Judge Randa attended the seminars, some donations can be ascertained by foundation tax filings.

According to the Charles G. Koch Charitable Foundation’s tax filings, in 2012 it gave $5.45 million to the George Mason University Foundation, and $51,000 to its “Law and Economics Center.” The Charles G. Koch Foundation gave $4.7 million to George Mason in 2010 for “general operating support and education programs,” $2.78 million in 2008 for “general operating support,” and $350,000 in 2006 for “educational and research programs.”

The Koch network also funded Wisconsin Club for Growth, which filed the case before Judge Randa. A full list of the Club’s funders is not known, but tax filings show that the Koch-connected Center to Protect Patient Rights (CPPR) funneled $225,000 to Wisconsin Club for Growth in 2011. CPPR also entirely bankrolled the Coalition for American Values, which spent $400,080 on pro-Walker ads in the final weeks of the recall elections. (In California, CPPR was hit with an unprecedented $1 million fine for its involvement in a campaign finance shell game to evade the state’s donor disclosure laws.) Other Koch groups, like Americans for Prosperity, have reportedly been subpoenaed in Wisconsin’s John Doe investigation.

In 2010, the Bradley Foundation gave George Mason $40,000 “to support educational programs for judges conducted by the Law and Economics Center.” It also gave George Mason $40,000 in 2008 “to support the judicial education program,” and $35,000 in 2006 “to support education programs.”

The Bradley Foundation’s President and CEO, Michael Grebe, chaired Scott Walker’s 2010 and 2012 gubernatorial campaigns. Walker’s 2012 campaign is under investigation in the John Doe for allegedly illegal coordination.

Both Bradley and Koch have long demonstrated antipathy for limits on money in politics, and for years have bankrolled organizations that fight against campaign finance reform, like the Center for Competitive Politics.

Judicial Seminars Reflect Principles in Powell Memo

Some have drawn a direct line between these corporate-funded judicial seminars and the 1971 Powell Memo, a call-to-arms for corporate America to aggressively push back against the “attack on the free enterprise system” — represented by the likes of Ralph Nader — by developing a set of institutions to reshape politics and law.

The Powell Memo reportedly sparked the development of a right-wing infrastructure and the formation of groups like the American Legislative Exchange Council (better known as ALEC), the Cato Institute, the Federalist Society (with which Judge Randa is affiliated), and others. As the New York Times recently reported, Charles Koch specifically referenced the Powell Memo in a 1974 speech previewing what has become the “Koch network,” calling for a “well-financed cadre of of sound proponents of the free-enterprise philosophy” and for business to “undertake radical new efforts to overcome the prevalent anti-capitalist mentality.”

Some of the memo’s most aggressive language was reserved for the judiciary, which its author, then-tobacco lawyer and future U.S. Supreme Court Justice Lewis Powell, called “the most important instrument for social, economic and political change.”

As a Supreme Court Justice, Powell would play a key role in decisions like First National Bank v. Bellotti and Buckley v. Valeo, which declared that “money equals speech” and reshaped the First Amendment into a tool to protect the ability of corporations and wealthy individuals to spend on elections.

Privately-Funded Seminar Disclosure Still Spotty

Although the Judicial Conference requires that judges publicly disclose their attendance at privately-funded seminars, and that those who conduct the events publish details about their funders, tracking the reports can be difficult, as the Center for Public Integrity has noted.

The Eastern District of Wisconsin website has a page that is supposed to list all seminars attended by federal judges in that court over the past three years, yet claims that there is “no attendance reported” for any Eastern District judges since 2011. This is contradicted by a review of Judge Randa’s 2012 financial disclosure form.

Requesting an individual judge’s financial disclosure form can take weeks, although Judicial Watch has posted many forms online.

Judge Randa reported no travel reimbursement on his 2010 financial disclosure form, but the Center for Public Integrity reports that he attended a 2010 seminar at George Mason titled “The Rule of Law.”

George Mason also has apparently tried to dodge the limited donor disclosure rules that do exist. Prior to 2012, it disclosed its list of corporate and foundation seminar funders — which consistently included Koch and Bradley and corporations like Exxon Mobil — but in 2012 listed the only funder as “xyz corp,” and listed itself as the only donor. In 2013 it returned to providing a full list of donors

– Lisa Graves contributed to this article –

See more of the Center for Media and Democracy’s reporting on the John Doe campaign finance probe here.

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Leaked Docs show how Wall Street giant is guaranteed huge fees from KY taxpayers on risky pension investments

Leaked Docs show how Wall Street giant is guaranteed huge fees from KY taxpayers on risky pension investments

By David Sirota
May 5, 2014

When you think of the term “public pension fund,” you probably imagine hyper-cautious investment strategies kept in check by no-nonsense fiduciary laws.

But you probably shouldn’t.

An increasing number of those pension funds are being stealthily diverted into high-fee, high-risk “alternative investments” that deliver spectacular rewards for the Wall Street firms paid to manage them – but not such great returns for pensioners and taxpayers.

Citing data from the National Association of State Retirement Administrators, Al Jazeera America recently reported that “the average portion of pension dollars devoted to real estate and alternative investments has more than tripled over the last 12 years, growing from 7 percent to around 22 percent today.” With public pensions now reporting $3 trillion in total assets, that’s up to $660 billion of public money in these high-fee, high-risk investments.

And yet… despite the fact that they deal with the expenditure of taxpayer money, the agreements between public pension systems and alternative investment firms are almost entirely secret.

Until now.

Thanks to confidential documents exclusively obtained by Pando, we can now see some of the language and fee structures in the agreements between the “alternative investment” industry and major public pension funds. Taken together, the documents raise serious questions about whether the government employees, trustees and politicians overseeing major public pension funds are shirking their fiduciary responsibilities under the law when they are cementing “alternative” investment deals.

The documents, which were involved in a recent SEC inquiry into the $14.5 billion Kentucky Retirement Systems (KRS), were handed to us by SEC whistleblower Chris Tobe, an investment consultant and former trustee of the KRS. Tobe has also written a book — “Kentucky Fried Pensions” — about the scandalous state of the Kentucky public pensions system. 

The documents provided by Tobe (embedded below) specifically detail Kentucky’s dealings with Blackstone – a giant Wall Street investment firm which has deployed a platoon of registered lobbyists in Kentucky and whose employees are major financial backers of Kentucky U.S. Sen. Mitch McConnell (R).

The Blackstone-related documents, though, don’t just tell a story about public pensions in Kentucky. The firm, which just reported record earnings, does business with states and localities across the country. The Wall Street Journal reports that “about $37 of every $100 of Blackstone’s $111 billion investment pool comes from state and local pension plans.”

In one set of documents provided by Tobe, Blackstone’s payment structure is outlined, with language guaranteeing that Blackstone will receive its hefty annual management fees from the taxpayer – regardless of the fund’s performance.

In other documents, public pension money is exempted from some of the most basic protections usually guaranteed under federal law. Other contract language appears to license Blackstone to engage in financial conflicts of interests that could harm investors.

Despite the documents involving government agencies, and taxpayer money, they are all marked confidential. The public is not allowed to see them.

Tobe says the sheer size of Blackstone – and its attendant ability to set industry standards - means that the documents he obtained represent a story that goes way beyond one state.

“These agreements aren’t unique to Kentucky – they are everywhere,” Tobe told Pando. “They include exactly the kind of risk and boilerplate heads-I-win-tales-you-lose language that is almost certainly standard in the contracts that so many other pension funds have been signing… This is a national problem.”

Blackstone’s “Fund of Funds”: Up to $200M a year in fees and underperformance that can harm taxpayers

One of those documents given to Pando by Tobe is a confidential memo to KRS investment committee members from August 2011. In the memo, KRS staff outlines their desire to invest roughly $400 million in Blackstone’s Alternative Asset Management Fund (BAAM), which is a so-called “fund of hedge funds.”

As documented on page seven of that memo, Blackstone was guaranteed whopping fees of 50 basis points plus 10 percent of any overall profits on retirees’ money. In addition, the memo estimates 1.62 percent management fees and 19.78% incentive fees to be paid on top of the Blackstone fees to the underlying (and undisclosed) individual hedge fund managers in the “fund of funds.”

Pension officials made the decision to invest in the fund despite Blackstone then reportedly being under SEC investigation. According to KRS’s latest annual financial statement, Kentucky now has more than half a billion dollars invested in BAAM.

In 2013, according to KRS data, BAAM earned an 11.54 percent return for the pension system. That was 20 percent below the S&P 500 that year, meaning, Tobe says, that Kentucky taxpayers would have earned $78 million more in an almost fee-less S&P index fund. Those figures are consistent with a recent study from the Maryland Public Policy Institute showing “that state pension systems that pay the most for Wall Street money management get some of the worst investment returns.”

Fees, says Tobe, are a driver of the underperformance. Using the secret memo’s figures, Tobe estimates that 33 percent of that stunning one-year underperformance - or about $25 million – was in the form of fees paid to Blackstone and the other managers in its “fund of funds.”

According to data from the investment research firm Prequin, 20 others public pension funds are also invested in BAAM. Assuming those funds invested in BAAM under roughly the same terms as Kentucky, Tobe estimates that Blackstone and underlying managers in BAAM raked in well over $200 million in fees in 2013 on just that one fund of funds.

Absent from the memo to the trustees are any details about which particular hedge funds are in the BAAM fund. In an interview with Pando, Tobe argues that was by design because, he says, Kentucky officials wanted trustees to vote on the investment without being able to do due diligence. Tobe says that meant trustees were not made aware that BAAM invested in SAC Capital – the firm whose executives recently pled guilty to insider trading charges, and who at the time of the Kentucky investment were already under SEC investigation.

“The crack cocaine of the private equity industry”

Other documents obtained by Pando detail Blackstone’s separate private equity fund, Blackstone Capital Partners V, which the New York Times describes as “the biggest private equity fund in history.” Prequin data show that public pension systems in 24 states have made $6.5 billion worth of investment commitments to this one private equity fund. 

According to KRS’s 2013 annual report, the Kentucky pension system has $81.1 million in that and one other Blackstone private equity fund.

One document prepared by the investment consulting firm Strategic Investment Solutions shows that in Capital Partners V, Blackstone is guaranteed management fees of between 1 percent and 1.5 percent, depending on the size of the investment. Attached to that document is another Blackstone document in which the company presents its past track record. In fine print at the end of that second document, the company declares that it does not make “any representation or warranty, express or implied, as to the accuracy or completeness of the information.”

Public pensions are typically bound by the so-called “prudent person rule”. Investopedia explains that this rule, which is enshrined in many state statutes, requires public pensions to avoid “shady, risky, or otherwise poor investments.” The Organization for Economic Cooperation and Development says it operates in the United States to require “that unwarranted risk be avoided” in favor of a “culture of cautious behavior among pension” overseers.

Yet, a document detailing investment contract language for investments in Blackstone Capital Partners V appears to show quite the opposite. Marked “Risk Factors and Potential Conflicts of Interest,” the document outlines major risks for public pensions – the kind of risks that are rarely ever disclosed to the public.

For example, the document shows Blackstone admitting that investing in the fund “involves a high degree of risk”; that “the possibility of partial or total loss of capital will exist”; that “there can be no assurance that any (investor) will receive any distribution”; and an investment “should only be considered by persons who can afford a loss of their entire investment.” Additionally, the document says investments made by the fund could subject investors to “certain additional potential liabilities” and that an investor “may be required to make capital contributions in excess” of what it originally pledged.

Amazingly, while asking public pension trustees to invest money in the fund, the Blackstone document also says that “none of the Partnership’s investments have been identified,” meaning trustees could not even evaluate the underlying investments before they decided to invest retirees’ nest eggs.

In terms of legal protections, the document says investments made by the private equity fund could be illiquid “for a number of years.” In a section marked “absence of regulatory oversight,” the document also says investors “are not afforded the protections of the 1940 (Investment Advisers) Act.” It also says that in the event of litigation brought against the managers of the fund, those costs “would be payable from the assets” of the investors.

Then there are the carve-outs for financial conflicts of interest. One section of the document declares that “Blackstone has long-term relationships with a significant number of corporations and their senior management” and that when making investment decisions, Blackstone “will consider those relationships.” Another section declares that “Blackstone may have conflicting loyalties” between the different funds it operates, and that “actions may be taken for the Other Blackstone Funds that are adverse” to investors.

According to former SEC investigator Ted Siedle, who served as counsel to Tobe during the SEC investigation, the conflict-of-interest section marked “Fees for Services” is particularly problematic. He says it permits private equity managers to assess fees on companies the private equity fund owns, but then not compensate the fund investors (like public pensions) for those fees. This stealth fee-inflating practice, which is attracting SEC scrutiny, has been called the “crack cocaine of the private equity industry.”

An official with the American Federation of Teachers, whose members are relying on pension investments, told Pando that the disclosures of huge fees and potential conflicts of interest may put pension trustees at odds with the law.

“Trustees risk violating their fiduciary duty if they don’t aggressively confront fees and potential conflicts of interest in the investment chain,” said Dan Pedrotty, AFT’s Director of Pensions & Capital Strategies.

More generally, critics of various political stripes say that while the risks outlined in the Blackstone private equity documents may be acceptable for individuals acting with their own money, they may be too perilous for public pensions, especially when a larger and larger portion of those pensions’ portfolios are in such private equity investments.

For instance, citing data from Wilshire Consulting, conservative conservative American Enterprise Institute scholar Andrew Biggs says these kinds of dangers make alternatives “60% riskier than U.S. stocks and more than five times riskier than bonds.” Time Magazine’s Rana Foroohar reports that a recent conference of liberal scholars said the possibility of catastrophic losses mean “pension funds shouldn’t be in high-risk assets” and “should be mainly invested only in no or low fee index funds.” And both the Government Accountability Office and Siedle have raised questions about the risks inherent in private equity’s opacity and illiquidity.

Money, political influence and the alternative investment craze

In recent months, questions have been raised about why pension funds are investing so heavily in  high-fee, high-risk alternative investments. For example, a New York Times report recently noted that “a number of retirement systems that have stuck with more traditional investments in stocks and bonds have performed better” than those investing heavily in alternatives. Similarly, Bloomberg News reported that “more than half of about 400 private-equity firms that SEC staff have examined have charged unjustified fees and expenses without notifying investors” of such fees. 

Pension analyst Leo Kolivakis says public pensions – read: public employees and taxpayers – are among those facing the biggest downside.

“Despite hedge funds having suffered the worst performance start to the year since 2011, industry assets hit a new peak of $2.7 trillion thanks to healthy net inflows,” he recently wrote. “And who is leading the charge? Who else? Dumb public pension funds getting raped on fees.”

The question, then, is why. When The Economist magazine reports that “the average return of hedge funds has lagged a plain-vanilla portfolio (in) nine of the past ten years,” why are pension funds dumping so much cash into high-fee hedge funds? When none other than Warren Buffett is telling his own trustee to only invest his money in government bonds and cheap index funds, why are public pension officials nonetheless putting retiree money into high risk private equity firms? In short, why have public pension funds been so aggressively moving money into these alternative investments?

One part of the answer may have to do with a misguided effort by pension administrators to bet big on ever-more risky investments in hopes of earning outsized returns and more quickly closing revenue shortfalls. That, though, may be creating more problems. As a 2013 study by the International Monetary Fund showed, severely underfunded pension plans have “increas(ed) their risk exposures” ultimately “exposing them to greater volatility and liquidity risks.”

Tobe says the Kentucky Retirement Systems fits this description. He points out that according to KRS financial statements, Kentucky invests an above-average 34 percent of its assets in “alternatives.” That strategy last year delivered roughly 12 percent returns for KRS – far below the 16 percent median for public pensions. The high fees involved in such “alternatives” may help explain, in part, why a December 2013 KRS presentation (embedded below) shows the pension system is now just 23 percent funded – a rate that Tobe says is one of the worst in America.

That said, another reason why pension funds have moved into risky high-fee investments may have to do with political influence and campaign cash from the Wall Street firms that stand to benefit from the alternative investment craze.

While a spokesperson for Blackstone told Pando “I am not aware of any (Blackstone lobbyists) in Kentucky,” government ethics disclosures show Blackstone and companies Blackstone funds own actually employ 11 lobbyists in the state (when shown the disclosure forms, the spokesperson subsequently insisted that “these are not lobbyists but internal investment professionals who work with our clients on their investment objectives”).

Among the lobbyists is one from Park Hill Group, the Blackstone-owned firm whose website describes it as “a placement agent providing placement fund services for private equity funds, real estate funds, and hedge funds, as well as secondary advisory services.”

As documented by Bloomberg News, placement agents often leverage political connections to convince public pension systems to invest in their clients’ funds. Because pension funds are barred from choosing investments based on such political considerations, the controversial placement business has periodically faced legal scrutiny, with some states and cities moving to crack down on placement agents. But, as evidenced by Kentucky and its relationship with Blackstone, many states still very much permit them. Indeed, according to Forbes, “Park Hill itself received $2.35 million for lining up business in Kentucky – for Blackstone funds.”

Of course, what can supercharge the influence of lobbyists and placement agents is the campaign contributions of their clients. So, for instance, according to data from the Center for Responsive Politics, Blackstone employees are among the largest campaign contributors to Kentucky’s chief political powerbroker, U.S. Senator Mitch McConnell (R).

Some of that money can filter directly the coffers of state parties that specifically run elections for positions involved in pension policy. For example, Blackstone employees are top contributors to a joint fundraising committee “McConnell Victory Kentucky,” which, according to the Louisville Courier-Journal, donates heavily to the Kentucky Republican Party.

The potential relationship between campaign money and pension policy is not limited to Kentucky. As USA Today reported back in 2009: “More than two dozen firms that have surfaced in a broad corruption investigation of public pension funds gave at least $1.97 million in campaign contributions to officials with potential influence over the funds’ investments.”

Blackstone and private equity trade association response

Pando requested comment from the Kentucky Retirement Systems 4 days before publication time, but KRS did not respond. However, representatives of the alternative investment industry did.

In response to the disclosures, Blackstone senior managing director Peter Rose told Pando: “Our funds have produced equity-like returns with bond-like volatility over a market cycle and have protected capital in down equity markets. We are proud of what we have been able to achieve for our investors in over two decades of investing.”

Additionally, the trade association for the private equity industry also responded to the disclosures. Acknowledging that “A majority of private equity investment comes from institutional investors such as public pensions,” Noah Theran of the Private Equity Growth Capital Council told Pando: “Research has consistently shown that private equity is the best performing asset class for pensions over the long-term, but as is the case with any investment, it is not without risk.”

A commitment to secrecy

When Pando asked for specific comment on whether agreements between Wall Street firms and taxpayer-backed public pensions should be available to the public, Rose said: “We are going to decline to comment on this.” Likewise, the Private Equity Growth Capital Council and KRS did not respond to questions about secrecy. 

That response – or lack thereof – highlights how public pension transactions with Wall Street remain shrouded in secrecy in states throughout the country. As Susan Webber has written, despite the astronomical sums of taxpayer money and retirement income at stake, “public pension funds routinely turn down requests” for such basic information in hopes of shielding the fee bonanza from scrutiny.

For example, following SEC warnings of fee abuse in private equity investments, the New York state’s Teachers’ Retirement System flatly rejected Reuters’ open-records request for information about its private equity holdings.

In North Carolina, a recent report by Siedle found that thanks to a lack of transparency, “It is virtually impossible for stakeholders to know the answers to questions as fundamental as who is managing (pension) money, what is it invested in and where is it?”

In Rhode Island, the financial industry is a major donor to the election campaigns of State Treasurer Gina Raimondo (D), who has used her power to move more pension money into high-fee alternative investments. Many of those investments subsequently underperformed and hurt pension earnings, all while generating big Wall Street fees. When transparency and good-government groups asked for the full details of the alternative investments in question, Raimondo refused.

Meanwhile, when Pando requested details of the New Jersey state pension fund’s investment in a firm that is financially connected to the fund’s investment chief, the state government refused the request.

In Kentucky, the secrecy surrounding the pension fund has prompted Tobe to work with State Rep. Jim Wayne (D) on legislation proposing to crack down on placement agents, and to mandate the public disclosure of contracts between Wall Street firms and the pension system. Though Wayne is a Democrat, the bill was praised by the state’s major conservative think tank. And though the proposal was ultimately killed, Wayne says it provides a template for other states.

“This is a national problem and there’s just such a huge amount of money involved,” he told Pando. “Billions and billions of dollars are swirling around in these retirement systems, and there are people interested in capturing big shares of this money as they advise and direct how this money is invested. Clearly, there is a trust issue here with employees and pensioners. They have to trust that the system is being honest with them because their livelihoods are at stake. But they can’t trust a system that isn’t transparent.”

Documents provided to Pando by Chris Tobe:

Blackstone Risk Language



2013 Act Krs

David Sirota is a staff writer for PandoDaily, television commentator and nationally syndicated weekly newspaper columnist living in Denver, Colorado. He is the author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future” and has written for The New York Times Magazine, Harper’s, Wired, Vice, The Nation and He covers the intersection of politics, technology and popular culture.

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We name the political donors whose firms got $14bn of pension cash from New Jersey

We name the political donors whose firms got $14bn of pension cash from New Jersey

By David Sirota
May 22, 2014

New Jersey and federal pay to play rules have a very clear purpose: To prevent executives at financial firms that do business with the state from making contributions to New Jersey politicians or political organizations that operate in New Jersey.

Over the past few weeks, Pando has reported several cases where New Jersey’s rules have, at best, been ignored and, at worst, clearly violated in the awarding of pension management contracts to political donors. Throughout our reporting, and as New Jersey’s pension crisis is now making national headlines, the one question we’re most frequently asked is: How widespread is the problem?

Today, after a two month investigation, we answer that question.

Below is a spreadsheet showing that political donors associated with 43 financial firms managing New Jersey pension money have spent a total of $11.6 million on contributions to New Jersey politicians and to major political organizations operating in New Jersey elections.

Many of those donations have gone directly to Gov. Christie’s election campaign and to the New Jersey Republican State Committee. Additionally, many of the contributions came either just before or just after the Christie administration awarded the firms multi-million-dollar pension management contracts. Indeed, Christie officials have given many of the firms that have made the donations additional pension investments, often worth hundreds of millions of dollars.

In total, New Jersey government data show that the 43 firms now manage roughly $14 billion worth of New Jersey state pension money.

To produce our report, Pando evaluated campaign contributions from donors associated with every hedge fund, private equity firm and other so-called “alternative investment” firm that the New Jersey Division of Investment says is managing pension state pension money. Pando’s analysis also includes other more traditional investment management firms that the division also says is providing financial services to the state pension system.

We cross referenced those firms with campaign contributions to all New Jersey politicians and state parties. We also evaluated all contributions to the Republican and Democratic governors associations and to the Republican National Committee because those organizations spend heavily in New Jersey state elections. We did not include contributions to the Democratic National Committee because campaign finance records show that in the timeframe evaluated, the DNC has not spent heavily in New Jersey state elections (as the Newark Star-Ledger put it in 2013, the DNC “has had little presence in New Jersey”).

The data includes all campaign contributions from donors whose campaign disclosure forms list firms doing business with the pension fund as their employer.* It also includes investment management professionals who are close family members of executives at those firms. The data goes back to 2009 when Christie first ran for governor. For each investment company, we include all contributions two years prior to New Jersey investing public money in the firm. That two year window is relevant because that is the so-called “look back” period that New Jersey Division of Investment rules prohibit campaign contributions from being made.

More than $60,000 to New Jersey politicians

On top of SEC pay to play rules and New Jersey pay-to-play statutes, the New Jersey Division of Treasury’s anti-corruption rules bar state officials from offering pension management contracts to a firm if “the investment management firm (or) any investment management professional associated” with the firm makes “any political contribution” to any “incumbent, candidate or successful candidate for Governor or for a seat in the Legislature.” The rules apply to contributions both before a contract is signed and “during the term” of a contract. The rules also include provisions restricting certain kinds of contributions from family members of executives at firms doing business with the pension fund.

Yet, according to New Jersey and Federal Election Commission documents analyzed by Pando, $60,522 worth of donations were made to New Jersey state politicians from donors listed as employees of 12 financial firms currently managing New Jersey pension money. Seventy-two percent of that $60,522 went to New Jersey Republican state lawmakers. That includes $31,345 to Christie’s election campaigns.

That money to Christie came from donors listing a total of seven firms as their employer. Since 2009, the Christie administration has proposed an additional $2.9 billion in state pension investments with those 7 firms. Today, according to Division of Investment documents, those 7 firms manage more than $4 billion of New Jersey pension money.

Here are some examples of timelines of political contributions and New Jersey pension contracts:

- In 2009, three donors listing their employer as Goldman Sachs gave Christie a total of $5,900. In March of 2010 – just months after Christie took office – the New Jersey State Investment Council proposed a new $250 million investment in Goldman Sachs. Meanwhile, in 2012 and 2013, Christie received a total of $7,000 from two donors whose employer is listed as Goldman. The contributions came despite Goldman managing New Jersey pension money since February of 2006. Among the Goldman donors to Christie is Donald Himpele, who is listed as a Managing Director in the firm’s annual report; and George Lee, who Business Insider describes as “partner and co-head of global technology, media and telecom banking at Goldman Sachs.”

- New Jersey campaign finance documents show that Garrett Moran, who Fortune magazine tells us served as a COO in Blackstone’s private equity group, gave Christie $1000 in February of 2009. According to New Jersey Division of Investment documents, Blackstone has managed New Jersey pension money since 2005. Additionally, the Christie administration proposed new investments in Blackstone in July of 2011, December of 2011 and March of 2013.  A Blackstone spokesman told Pando that Moran’s contribution “was made in error” and that “the check was returned.” However, Pando could find no recording of that returned check on the New Jersey Election Law Enforcement Committee’s website.

- Between 2009 and 2013, donors listing Credit Suisse, JP Morgan, Guggenheim Partners and Gleacher as their employer have given Christie and other New Jersey Republican state lawmakers a total of $16,755.  The contributions were made despite those four firms doing business with New Jersey since before Christie was governor. According to Division of Investment documents, those firms today manage more than $1 billion of state pension money.

These examples and contribution figures are on top of another tranche of contributions to New Jersey Republicans by financial executive Jon Lubert, who is the the son of one of the principals of Lubert Adler — a firm that received $100 million of New Jersey pension money in 2010. That year, the younger Lubert made a $2,000 contribution to the New Jersey Republican State Committee and a $2,600 contribution to Republican state senator Thomas Goodwin. In 2012 and 2013, campaign disclsoure records show Jon Lubert also made combined contributions of $7,600 to Chrstie’s reelection campaign.

In response to Pando’s request for comment, Jon Lubert said “I believe the law only prohibits children that live with the restricted person from making contributions.”

In fact, the rules bar executives at firms doing business with the pension from “fund(ing) political contributions or payments to a political party made by third parties, including consultants, attorneys (and) family members.” They also bar contributions from “any person associated with an investment management firm who is primarily engaged in the provision of investment management services.”

On the question of whether Jon Lubert is “associated with” Lubert Adler, Jon Lubert acknowledged that his firm is located in thee same building as his father’s, but said his firm is “completely separate” from Lubert Adler. The rub: he emailed these statements in response to questions sent to him via an email address in his name at Lubert Adler.

More than $148,000 to New Jersey State parties

In addition to SEC rules, New Jersey Division of Investment rules prohibit pension investment contracts from going to firms whose finance professionals have made contributions to New Jersey state political parties. The rules cover “any investment management professional associated with” firms doing business with the pension fund. The rules also apply to contributions from those providing “financial advisory or consultant services” to firms doing business with the pension fund.

Yet, according to New Jersey and FEC documents, those listing such firms as their employers have donated $148,700 to New Jersey state parties since 2009. Of that, 83 percent – or $123,500 – has gone to the New Jersey Republican State Committee. Those GOP donations have come from employees of 5 firms that together manage more than $3 billion of New Jersey pension money, according to Division of Investment documents.

The highest profile example of how these contributions may run afoul of federal and state pay to play rules comes from the now-famous saga of General Catalyst’s Charlie Baker making a $15,000 contribution to the New Jersey Republican State Committee months before the Christie administration gave General Catalyst a multi-million-dollar pension management contract. Here are some other examples that Pando’s investigation has uncovered:

- Between 2010 and 2012, documents show Samuel Cole of State Street gave the New Jersey Republican State Committee $80,000 ($60,000 plus $20,000 to the party’s federal account). The contributions came despite the pension fund investing in State Street’s Institutional Liquid Reserves Fund since at least February 2011. According to a State Street press release, Cole was a State Street vice president working specifically for State Street Global Markets, LLC. That is the same division of the firm that State Street lists as the distributor of the Institutional Liquid Reserves Fund that New Jersey invests in. Additionally, Division of Investment documents show the pension fund uses State Street for financial custodian services.

- A New Jersey campaign finance document from 2011 shows a $15,000 contribution to the New Jersey Republican State Committee from Greg Onken. The document lists JP Morgan as Onken’s employer. JP Morgan Securities’ website lists Onken as “a Managing Director and Financial Advisor.” New Jersey Division of Investment documents show JP Morgan currently managing $50 million of New Jersey pension money. Those documents say the investment in JP Morgan investment began in June 2006.

- New Jersey campaign finance documents show that Anthony Grillo gave the New Jersey Republican State Committee $10,000 in November of 2011. The documents list Blackstone as Grillo’s employer. The Grillo contribution came less than a month before Christie’s pension officials proposed a new Blackstone investment in December 2011. A Blackstone spokesperson asserted to Pando that Grillo no longer works for Blackstone, and did not work for the firm at the time of the contribution.

Of the $148,700 donated to New Jersey political parties, $33,500 went to those parties’ federal accounts. One legal expert Pando contacted said that those specific contributions (as opposed to the other contributions to the state accounts) are permissible under SEC rules. By contrast, former Assistant U.S. Attorney Melanie Sloan, now with Citizens for Responsibility and Ethics in Washington, told Pando that the New Jersey Department of Treasury rules “prohibit contributions to political parties, meaning any party or committee organized in the state and (these contributions) would qualify.”

More than $7.1 million to the Republican Governors Association, which is run by Christie

The Wall Street Journal has reported that in 2009 and 2013, the Republican Governors Association spent a combined $9 million to help elect and reelect Christie governor. That is part of its mission to, in an RGA spokesman’s words, “elect and support Republican governors.” In between his elections, Christie first served on the organization’s executive committee and then served as vice chair of the organization. As of late 2013, he is is now the RGA’s chairman.

Federal and New Jersey pay to play rules include so-called anti-circumvention provisions designed to prevent campaign contributions to outside groups from effectively going around aforementioned bans on such donations. In the words of the SEC rule, it is “unlawful for an adviser or any of its covered associates to do anything indirectly which, if done directly, would result in a violation” of the pay to pay regulations.

Yet, despite those anti-circumvention provisions, employees of firms managing New Jersey state pension money have made $7.1 million worth of donations to the RGA since 2009. Many of those contributions came into the organization either while Christie was leading the organization and/or while he was benefiting from the organization’s spending in New Jersey to support his election campaigns.

Once again, examples of donations in comparison to pension contracts is illustrative:

- Two days after Christie was elected vice chair of the RGA in 2011, Elliott Associates’ Paul Singer made a $250,000 contribution to the organization. Less than a month after the RGA donation, Christie officials proposed a $100 million pension investment in Elliott Associates. As previously recounted by The Nation’s Lee Fang, Singer’s donation to the Christie-run RGA was one of many such RGA donations by Singer.

- In 2012, two months after New Jersey invested $150 million in pension money in a fund managed by Lazard Asset Management, Herbert Gullquist made a $25,000 contribution to the RGA while Christie was vice-chair. Gullquist made another $25,000 contribution to the RGA in 2013 while the organization was spending heavily to support Christie’s reelection campaign in New Jersey. FEC documents list Gullquist’s employer as Lazard, and Crain’s reported in 2013 that Gullquist is “a senior adviser at Lazard Asset Management, a New York-based company he co-founded.”

- In March 2011, New Jersey proposed investing $100 million of pension money with Dan Loeb’s firm, Third Point. That was just four months after Loeb made a $300,000 contribution to the RGA. Additionally, while Christie was vice-chair of the RGA in 2012, Loeb gave the organization $250,000. Loeb also gave another $250,000 to the RGA in 2013 while the organization was spending heavily in New Jersey to support Christie’s reelection campaign.

- In October 2012, IRS documents show that the firm Perella Weinberg made a $25,000 contribution to the RGA, while Christie was RGA vice chair. Seven months later, Christie officials proposed a $100 million New Jersey pension investment in the firm’s real estate fund.

For its part, the Christie administration has declared that when it comes to RGA contributions, it will not enforce the anti-circumvention provisions in stay pay to play rules. Indeed, in 2013, the Bergen County Record reported that the Christie-controlled Election Law Enforcement Commission unilaterally deemed such contributions “legal because the governors’ group is bound by federal regulations, not state law.”

However, watchdog groups have suggested other agencies that are independent from the Christie administration may have the authority to enforce the anti-circumvention provisions.

Millions to the RNC, which financed and ran large portions of Christie’s election campaigns

Along with the aforementioned anti-circumvention provisions, New Jersey pay to play rules bar pension investment contracts from going to firms whose financial professionals have made donations to “political committee organized in this State.” The RNC’s extensive operations in New Jersey raise questions about whether it fits that definition.

In 2009, for instance, the RNC publicly bragged about spending $4.1 million in New Jersey, and about organizing “over 2 million volunteer phone calls and doors knocked” in the state.

Likewise, in 2013, the Newark Star-Ledger published an article headlined “Republican National Committee foots the bill for Christie’s voter turnout operation.” Noting that the RNC’s operations were headquartered next door to Christie’s campaign, the article quoted Christie’s campaign manager saying the group “work(s) alongside Christie for Governor people, they work alongside Republican state Senate campaigns whether incumbents or challengers, they work with county freeholder candidates, all the way down to mayors.” That is corroborated by New Jersey state campaign reports in which the RNC details how it funnels money to New Jersey county parties.

Yet, despite the pay to play rules and the RNC’s extensive on-the-ground operations in New Jersey, campaign finance disclosures show employees of 40 firms doing business with New Jersey’s pension fund have made $3.9 million worth of campaign contributions to the RNC over the last 5 years. Roughly $119,000 of those contributions came in 2013. That year is significant – it was after the RNC was spending money on presidential and congressional elections, and precisely when the RNC was publicly bragging about spending donors’ money in New Jersey, whose state elections are among the very few that take place in odd-numbered years.

The Christie administration proposed an additional $3.7 billion worth of pension investments in the eight firms listed as the employers of the donors who made those 2013 contributions to the RNC. Again, timelines of pension investments and contributions are illustrative:

- In June 2013, FEC records show that Northwood Investors COO Erwin Aulis made a $25,000 contribution to the organization. Five months after that RNC contribution – and just a week after Christie’s reelection – Christie officials proposed a new $200 million state pension investment in a fund run by Northwood Investors.

- In August 2013, as the RNC was gearing up in New Jersey on behalf of Christie, FEC records show Steven Einhorn of Omega Advisors made a $32,400 contribution to the organization. The contribution came just months after Christie officials proposed a new $150 million pension investment in a fund run by Omega Advisors.

- FEC records show that Warburg Pincus CFO Timothy Curt made a $25,000 donation to the RNC in February of 2013. That donation came less than a year after the Christie administration proposed a $300 million investment in Warburg Pincus’s private equity fund.

Democrats also implicated

Federal and state campaign finance records show that of the $207,222 given to New Jersey politicians and parties by employees and associates of firms doing business with the New Jersey pension system, $39,967 has gone to the Democrats.

$15,767 of that sum is 2009 contributions to then-New Jersey Gov. Jon Corzine (D). Another $23,200 of that comes from two donations to the New Jersey Democratic State Committee. One of those party contributions was a $13,200 donation from Terrence O’Toole, whose employer is listed as Goldman Sachs. Another was a $10,000 donation from Blackstone CFO Laurence Tosi.

A Blackstone spokesman said that Tosi’s “contribution was to the federal account of a state party committee,” which the Blackstone spokesman insisted “is permitted by both the NJ and SEC rules.”

Meanwhile, the Democratic Governors Association has received $320,000 from employees of firms doing business with the New Jersey pension system. Another $80,000 has come to the DGA from the political action committee of JP Morgan, which also manages New Jersey pension money.

Even though the Democrats do not control the New Jersey Division of Investment, which makes the pension investment decisions, state pay-to-play rules apply to all state officials and political organizations, regardless of party.

All a big mistake?

During Pando’s investigation of the relationship between financial firms and public pension funds, some financial executives have insisted that campaign finance disclosure forms have inaccurately listed their employer. Charlie Baker, for example, previously argued that 33 separate campaign documents erroneously listed him as an employee of General Catalyst.

Similarly in response to this latest edition of Pando’s investigative series, the head of Christie’s State Investment Council, Robert Grady, said that the RNC was wrong to list his employer as Carlyle Venture Partners. The Carlyle Group also told Pando that the RNC was wrong to list the firm as Frank Carlucci’s employer. Meanwhile, a Blackstone spokesperson said Anthony Grillo’s employer was wrongly listed as Blackstone on New Jersey campaign documents. Despite these denials, the spreadsheet below lists employment information as it is recorded in public documents. 

Christie’s response (or lack thereof)

In light of this new data, and our earlier revelations, we asked Christie’s spokesman whether the governor is confident that New Jersey’s pay-to-play laws are working — and if not whether he plans to take steps to either create new laws, or ensure the existing ones are enforced. We asked the same question of the New Jersey Division of Treasury.

A spokesperson for the Division of Treasury said he was unable to comment until after we had published our data. Governor Christie’s office, which we contacted ~12 hours before publication, and which previously described Pando’s reporting as “biased, erroneous and riddled with errors,” had not commented by press time.

Nj Pension Donors / Associated Companies





David Sirota is a staff writer for PandoDaily, television commentator and nationally syndicated weekly newspaper columnist living in Denver, Colorado. He is the author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future” and has written for The New York Times Magazine, Harper’s, Wired, Vice, The Nation and He covers the intersection of politics, technology and popular culture.

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Christie supporter given equity stake in company connected to NJ pension cash

Christie supporter given equity stake in company connected to NJ pension cash

By David Sirota
May 16, 2014

All this week, Pando has been reporting on the connections between Chris Christie supporter Charles Baker, venture firm General Catalyst and millions of dollars of New Jersey pension money. After Baker made a sizable donation to Christie’s state party, New Jersey decided to hand millions of dollars of public pension money to General Catalyst, for whom Baker works as a partner. The story, which involves state and federal pay-to-play rules, is made all the more explosive by the fact that Baker is currently a Republican candidate for governor of Massachusetts.

The previous twist in the tale was Pando’s revelation that Baker serves on the board of General Catalyst backed Mulberry Health and Oscar Insurance — two firms which directly benefit from the Christie administration’s decision to invest New Jersey public pension resources in General Catalyst.

And it gets worse: Pando has now confirmed that Baker also has a personal ownership stake in Oscar Insurance.

According to a source close to Oscar, Baker “received compensation in the form of equity” in the company. The source added that Baker “hasn’t personally invested in Oscar” and owns “less than one percent of the company.” Still, with the company’s valuation reportedly close to $1bn, a 1% stake could still be worth as much as ten million dollars.

Since Pando already confirmed Baker is on the board of the firm, it is not completely surprising to learn that Baker received equity. After all, corporate board members are often compensated this way. However, the revelation is newsworthy because it means that Baker had a personal financial stake in a firm that received New Jersey pension money only months after he made a $10,000 campaign contribution to the New Jersey Republican State Committee.

The sequence of the campaign contribution going into the New Jersey GOP and then a public pension contract coming out of the Christie administration occurred despite federal and state pay-to-play laws aiming to prohibit campaign contributions from firms managing pension money. The Baker contribution and subsequent pension contract from Baker’s ally, Christie, has prompted the Massachusetts Attorney General and a senior New Jersey state lawmaker to request a federal investigation.

Baker’s relationship with General Catalyst and the firms it invests in could soon become more clear on June 3rd, which is the deadline for Massachusetts gubernatorial candidates to file financial disclosure forms.

Pando requested comment about this story from the Baker for Governor campaign. The campaign did not respond to the request.

David Sirota is a staff writer for PandoDaily, television commentator and nationally syndicated weekly newspaper columnist living in Denver, Colorado. He is the author of the books “Hostile Takeover,” “The Uprising” and “Back to Our Future” and has written for The New York Times Magazine, Harper’s, Wired, Vice, The Nation and He covers the intersection of politics, technology and popular culture.


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