Top appointees and employees at the state Teacher Retirement System overrode staff recommendations in order to hire political cronies and business associates for investment work there, Democratic gubernatorial nominee Bill White charged Tuesday.
White cited a whistle-blowing report from a former employee of the agency as evidence that Gov. Rick Perry's appointees and supporters are converting public service to financial gain. The memo, from an investment analyst then employed at TRS, also raised questions about what he thought were inappropriate interventions by members of the TRS board on behalf of firms and consultants seeking to do business with the retirement agency.
"These are largely lapses in business judgment, professional ethics and violations of internal policies and procedures," he wrote. "I believe, however, that some of the issues involve violations of Texas law that I am obligated, by professional standards, state law, and agency policy, to disclose."
Perry's campaign and the governor's state office each say nothing improper, or politically motivated, took place.
"While professional staff and oversight boards will disagree from time to time, the performance of TRS has been both professional and appropriate, and the fund has seen large gains in recent months, with returns in the top 5 percent of all U.S. public pension funds for the past quarter," said Katherine Cessinger, a spokeswoman in Perry's state office.
The Republican's campaign spokesman, Mark Miner, was blunter, saying of White, "He's throwing everything at the wall to see what will stick. … There's nothing here."
TRS took the memo, written in April 2009 by Michael Green, then-director of private markets in the agency's investment division, seriously enough to bring in an outside consultant to investigate. For that job, they turned to Roel Campos, a Texan and former Securities and Exchange Commissioner, to investigate the allegations. He concluded there was "no definitive evidence" anything improper had happened, and he recommended adoption of an ethics policy spelling out proper interactions between board members and the staff and put some standards in place to keep staff disagreements civil. All of that was sent, in turn, to the State Auditor's Office for review. State Auditor John Keel says they looked at the memo, the report, and the fact that the memo had also been shared with Attorney General Greg Abbott and decided not to do anything more with it.
"We didn't take any further action," Keel says, adding that the Campos report seemed to strike a balance between the board's access to information about investments they oversee and the independence of the TRS employees hired to rate investments the fund makes.
Green's memo contains several inflammatory passages. For instance, he writes that his boss "has stated on numerous occasions that 'I manage a fund with billions of dollars in assets, upsetting a board member or friend of the fun over the investment of a few hundred million dollars doesn't make sense.'" He details a series of decisions where Britt Harris, the agency's chief investments officer, "pressured TRS' investment staf and advisor to change their recommendations to decline investments." Several of the firms on that list are run by political supporters of Gov. Rick Perry; Green didn't detail that in his memo, but the White campaign did so, totaling contributions from people associated with firms listed in the memo.
"Perry and his people have milked our teachers' retirement for campaign cash," White said in a press release. "What was leaked today shows the use of political pressure to reward Rick Perry's friends. This is wrong." He called on the governor to release "all relevant documents and emails."
TRS officials say they reacted properly to Green's complaint and say the consultant they hired found no wrongdoing. "The investigation found no improprieties with respect to how the investment decisions in question were made," said Howard Goldman, an agency spokesman, via email.
In August, Green sent a copy of his memo to the criminal prosecutions division at the attorney general's office and to the Travis County District Attorney's office, according to Jerry Strickland, a spokesman for Abbott. "Shortly thereafter, OAG prosecutors met with Green. Because the Attorney General's Office lacks criminal jurisdiction over this matter, we later contacted the Travis County District Attorney's Office to confirm that they were aware of the allegations."
No prosecutions have followed. The district attorney's office couldn't be reached for comment after the close of business Tuesday.
White laid out the memo and made his accusations at an Austin press conference on Tuesday afternoon. He repeated them, somewhat mildly, in a debate later in the evening, citing it as an example of Perry using his office to benefit his supporters, a line of attack the Democrat has pursued throughout his campaign.
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- TRS External Report (1.1 MB) DOWNLOAD
- TRS Whistleblower memo (3.1 MB) DOWNLOAD