N.C. Pension Fund: Something Stinks in Raleigh

Raleigh’s latest scandal will not go away. The state pension plan took a big hit when an investment in Facebook stock tanked. And people want answers:

State Treasurer Janet Cowell is coming under fire from state employees and retirees who are raising questions about the pension fund’s management after it invested in Facebook – which saw its value tank after its stock market debut.

The state reported losing $4.1 million on its $26 million investment in the social networking company’s initial public offering in May, but the actual damage could be much larger. The state’s 618,137 remaining Facebook shares are now worth half the $38 it paid for each.

“Given the fact that IPOs are always considered to be somewhat speculative … people are outraged that some of their retirement money was lost,” said Ed Regan, executive director N.C. Retired Governmental Employees’ Association, who expects an inquiry into the matter. “On this one they messed up, and people want to know if anyone is going to be penalized for this.”

What really smells about this situation is the incestuous relationship between prominent Democrats at the state capitol. Erskine Bowles, a former N.C. senatorial candidate and ex-president Bill Clinton’s chief of staff, may have instigated this investment boondoggle. Bowles is also a board member of Morgan Stanley and Facebook; both are defendants in a lawsuit filed by the state of North Carolina.

But it gets even better; the broker who bought the stocks for North Carolina is a major investor in Facebook:

A broker at the Virginia-based investment firm Sands Capital Management bought the Facebook stock for the state, the treasurer’s office acknowledged Friday after declining to name the buyer a day earlier. The investment firm is one of Facebook’s largest institutional investors, owning 11.65 million shares of the company as of June 30

And just when you thought that was suspect; the law firm chosen to represent North Carolina is a campaign contributor to State Treasurer Janet Cowell:

And now the law firm chosen to represent the state is also generating questions. Bernstein Litowitz Berger and Grossmann gave Cowell’s campaign more than $75,000 since her 2008 election to the post, according to state records.

Cowell’s spokeswoman said officials from the treasurer’s office and state attorney general’s office reviewed proposals from six securities law firms on retainer and interviewed four before selecting Bernstein Litowitz and Labaton Sucharow, both of New York

Why is a New York firm contributing to a North Carolina politician? Something is rotten in Raleigh, and others also smell the stench.

“It doesn’t pass muster,” said Steve Royal, a Republican certified public accountant challenging Cowell in the fall election. “They are looking for business. It’s pay to play.”

Royal demanded more information about the transaction, saying a dotcom IPO “is just not an appropriate investment for a pension fund.”

“Do we not have any limits?” he asked. “Are (the state’s brokers) free just to do anything?”

The questions compound other conflict-of-interest concerns raised in legal documents by a competing law firm about Cowell’s close connection to prominent N.C. Democrat Erskine Bowles, a board member at Facebook and Morgan Stanley, which is a named defendant in the state’s case.

Bowles’ wife hosted a major fundraiser for Cowell’s campaign, but he did not contribute. Cowell filed a legal document this week saying the state “is intent on zealously prosecuting this action against all viable defendants.”

Altogether, the situation troubles SEANC’s Watkins. “Something doesn’t smell right,” she said. “At minimum, it’s an appearance of impropriety.”

At the least!

Source: http://www.newsobserver.com/2012/08/25/2290152/questions-raised-by-state-pension.html#storylink=cpy