Cuomo Builds Rochester Regional Support For Legislation To Reform State Pension Fund
ROCHESTER, N.Y. (November 2, 2009) - Attorney General Andrew M. Cuomo, along with Senators Joseph Robach and Jim Alesi as well as Assemblymembers David Koon and Joseph Errigo today announced local, bipartisan support for the Attorney General’s sweeping pension reform bill, which 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.
“The extensive bipartisan support for T.R.U.S.T. that we’ve built across the state underscores the absolutely crucial reforms and protections this legislation promises,” said Attorney General Cuomo. “The bill will fundamentally change the way our public pension fund operates and in doing so will bring trust and accountability back to a broken system.”
Senator Joseph Robach said, “I applaud Attorney General Cuomo for undertaking this investigation and for putting forth legislation that addresses the issue. We have an obligation to taxpayers to protect their interests and make sure that the state pension system is free from abuse. I support this bill and look forward to seeing it become law in New York state.”
Senator James S. Alesi said, “We must do everything we can to restore confidence in our pension system. For too long, there has been a lack of transparency and accountability. I believe that with Attorney General Cuomo’s proposal, we can install the proper checks and balances to eliminate pay to play.”
Assemblyman David Koon said, “Attorney General Cuomo is to be commended for not only uncovering troubling conflicts of interest in the state pension system, but also for proposing a solution to prevent them from recurring. I believe that his TRUST measure will bring much needed reforms and integrity to the taxpayer-funded system.”
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.
- 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.
The legislation 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 Henry (“Hank”) Morris and David 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.
Rochester-area lawmakers supporting the reforms include:
Assemblywoman Susan John said, “I thank the Attorney General for introducing this legislation to create better safeguards of the state retirement system. His investigation has illustrated why we need to create new disclosure requirements and prevent pay-to-play politics from intruding into the system.”
Assemblyman Joseph Errigo said, “Attorney General Cuomo’s measure to reform the state pension system is a sound and responsible solution that will help alleviate the abuses of trust that have taken place for too long. I commend his efforts and eagerly anticipate working with my colleagues in the legislature to see this proposal put into law.”
Rochester Mayor Robert J. Duffy said, “Attorney General Cuomo once again has shown why he is the ‘People’s Lawyer.’ With this new legislation, he is revolutionizing and modernizing how the state’s public pension system operates. The City of Rochester is honored to host him and our state representatives and I thank him for coming here to discuss this important legislation.”