CUOMO ANNOUNCES LEGISLATION TO REFORM STATE PENSION FUND
NEW YORK, N.Y. (October 8, 2009) - Attorney General Andrew M. Cuomo, along with New York Senate Majority Conference Leader John L. Sampson, Senator Brian X. Foley and Senator John Flanagan today announced new, bipartisan legislation that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay to play in state public pension funds.
(Media-Newswire.com) - NEW YORK, N.Y. ( October 8, 2009 ) - Attorney General Andrew M. Cuomo, along with New York Senate Majority Conference Leader John L. Sampson, Senator Brian X. Foley and Senator John Flanagan today announced new, bipartisan legislation that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate pay to play in state public pension funds. The legislation, entitled, “Taxpayers’ Reform for Upholding Security and Transparency” ( “T.R.U.S.T.” ) would institutionalize Cuomo’s Public Pension Fund Reform Code of Conduct, announced earlier this year, and provide additional civil, criminal and administrative penalties and sanctions to ensure firms and individuals are held accountable for violations of the new law. The Common Retirement Fund, last valued at $116.5 billion, is the state’s largest pool of money.
“For decades, the State pension fund has been weakened and corrupted by the sole trustee model,” said Attorney General Cuomo. “The model has allowed pay-to-play to flourish in a system meant to protect the retirement accounts of thousands of hard-working public employees. To put it simply - the model doesn't work. It’s about as sensible as having a single lock on Fort Knox. Today’s legislation will ensure that the fate of our public retirement fund isn’t decided by one individual, and that the entire system is rid of the kind of pay-to-play that infected and derailed it in the first place.”
Senate Majority Conference Leader John L. Sampson ( D-Brooklyn ) said: “We must do everything possible to protect the sanctity of our public pension fund and ensure our state retirement system will work for those who have spent their lives working for us. This bill will provide the necessary checks and balances to root out abuse and restore confidence in our state retirement systems. The Senate Majority Conference commends Attorney General Cuomo for his leadership on this issue and looks forward to working with him to pass this bill into law.”
Senator Brian Foley ( D-Brookhaven ), Chairman of the Senate Banking Committee and prime-sponsor of the bill, said: “This bill will codify the crucial reforms that Attorney General Cuomo has doggedly pursued over the past year. It will systematically disinfect a system that has been riddled with and debilitated by conflicts of interest and corruption. I commend the Attorney General’s leadership in transforming this broken system, and stand with him today to support truly groundbreaking legislation.”
Senator John Flanagan ( R-Suffolk County ) said: “Attorney General Cuomo’s investigation has revealed numerous incidents of abuse in the current system and it is imperative that we join together to protect residents of New York State from any future corruption and fraud. The legislation he is introducing today will serve as a great starting point towards restoring the integrity that the taxpayer’s public dollars deserve and rebuild the system to protect the investment of our retirees. I look forward to working with him as we move forward with this important issue and putting together the pension system reforms that will find support on both sides of the aisle in the Senate and the Assembly.”
Today’s legislation would increase the rigor, integrity and transparency of the investment process by eliminating campaign contributions by firms investing public pension money and banning the use of intermediaries paid to open the door to public pension fund investments. The legislation would also strengthen enforcement by adding misdemeanor and felony provisions and authorizing the Attorney General to commence civil actions to enjoin ongoing violations and impose civil penalties.
Attorney General Cuomo continued: “Public pension money is held in trust for state and local employees and is supported by taxpayer dollars. This new bill will help us safeguard that trust, and pave the way for nationwide reform.”
The legislation announced today:
Creates a New Employees’ Retirement Fund Board ( “Board” ): To manage the Common Retirement Fund, the sole trustee will be replaced with a Board of Trustees composed of 13 members. The Comptroller would chair the Board and serve alongside six members appointed by the Governor, Attorney General, Temporary President of the Senate, Speaker of the Assembly, the Senate Minority Leader and the Assembly Minority Leader. The Board’s other six members are to be selected by the members of CRF. Specifically, one active member of the retirement system shall be selected by active members in the retirement system; one retired member shall be selected by retired members; one county employee shall be selected by county employees in the retirement system; one local government employee selected by local governmental employees in the retirement system; and one police or fire employee selected by the New York State and Local Police and Fire Retirement System. All members of the Board must have investment expertise and shall not have been employees of the retirement system for three years.
Bans Placement Agents: Investment firms are prohibited from using placement agents, lobbyists, or any other third-party intermediaries to communicate or interact with public pension funds for any purpose. The prohibition does not apply to the use of consultants and investment banks to otherwise directly assist investment firms by, for example, preparing marketing materials or performing due diligence. Bans “Pay to Play”: Prohibits investment firms ( and their principals, agents, employees and family members ) from doing business with a public pension fund for two years after the firm makes a campaign contribution to any board member. The prohibition also applies to candidates for such positions, but does not apply to contributions of $300.00 or less to elected officials or candidates for whom the person making the contribution can vote.
Increases Transparency: Requires rigorous, ongoing disclosure of information relating to the identities, responsibilities and qualifications of investment fund personnel and any payments by investment firms to third-parties in connection with public pension fund matters. Also requires investment firms to promptly publish such information on their websites.
Imposes Higher Standard of Conduct: Holds investment firms to a higher standard of conduct that avoids even the appearance of impropriety. The legislation prohibits ( 1 ) improper relationships between pension fund officials and an investment firm's personnel or agents, ( 2 ) “revolving door” employment by investment firms of former public pension fund officials and employees, and ( 3 ) improper gifts by investment firms to public pension fund employees and officials;
Enhances Conflicts of Interest Policies: Investment firms are required to promptly disclose and cure any actual, potential and apparent conflicts of interest to public pension fund officials or law enforcement authorities where appropriate.
Ensures Ongoing Compliance: Investment firms must certify annually that they are in compliance with key disclosure requirements.
Strengthens Enforcement: T.R.U.S.T. institutes comprehensive and tough enforcement provisions. History teaches that self-policing is an ineffective means to safeguard State pension funds. An effective enforcement model and deterrent is imperative. TRUST provides such a model and deterrent. It creates tough new civil, criminal and disciplinary penalties and sanctions, and requires licensed professionals to report to law enforcement evidence of violations of the law. It also provides as a basis of criminal prosecution the theft of property and honest services from the retirement system, and extends the statute of limitations for a person acting in concert with a public servant.
T.R.U.S.T. would codify the Public Pension Fund Reform Code of Conduct created by Cuomo and his Office earlier this year. To date, seven firms have signed onto the Code: The Carlyle Group, Riverstone Holdings, Pacific Corporate Group, HM Capital, Falconhead Capital, Levine Leichtman Capital Partners, and Access Capital Partners. These firms collectively have agreed to return nearly $60 million associated with New York State Common Retirement Fund ( “CRF” ) investments; these funds will principally be provided to the CRF for the benefit of the pension holders.
For years, establishing an independent board of trustees for the Common Retirement Fund has been supported by policymakers and organizations across New York. For instance, as an Assemblyman, Comptroller Thomas DiNapoli voted in favor of a 1993 Assembly bill to create a 17-member board to oversee the CRF. Likewise, other associations with beneficiaries in the system have pushed for a board of trustees.
Today’s announcement stems from a two-year, ongoing investigation into corruption involving the New York State Comptroller’s Office and the CRF, conducted by Attorney General Cuomo’s Office. The charges to date allege a complex criminal scheme involving numerous individuals operating at the highest political and governmental levels under former Comptroller Alan Hevesi, in which the New York state pension fund was used as a piggy bank for the Comptroller’s chief political aide and a favor bank for political allies and other friends.
Attorney General Cuomo’s investigation into corruption at the CRF has led to a number of criminal charges to date, including charges against Morris and Loglisci, former Liberal Party Chair Ray Harding, and investment advisor Saul Meyer. Meyer, Harding, hedge fund manager Barrett Wissman, and Julio Ramirez, an unlicensed placement agent associated with Wetherly Capital, have pled guilty to Martin Act securities fraud charges for conduct related to the pension fund. Morris and Loglisci are presumed innocent until they are proven guilty in court.
Cuomo also issued subpoenas in May to over 100 investment firms and agents after his investigation found that 40 to 50 percent of agents obtaining investments from New York pension funds were unregistered.
In July, the United States Securities & Exchange Commission proposed new pay-to-play rules that would institutionalize Cuomo’s Code of Conduct nationwide.
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