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Robert Trigaux

How deep does it go? SEC probes fraud at state pension fund, Wall Street giants

6

November

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Wake up and good morning. Kudos to investigative reporter Sydney Freedberg for Friday's front page St. Petersburg Times story revealing the Securities and Exchange Commission is investigating possible fraud by the Florida State Board of Administration.

The state agency manages $132 billion in public investments for hundreds of local governments and a million current and future retirees and has endured years of controversy over investing mishaps and lack of disclosure. (Freedberg reported in September that the state board invested a quarter billion dollars in retirement funds in a Manhattan real estate deal and lost every penny of it. Here is that story.)

The SEC issue: Did the state and three Wall Street giants -- JPMorgan Chase, Credit Suisse and now-defunct Lehman Brothers -- mislead the public about the risk and liquidity of some of the State Board of Administration's investments?

The state damaged its own credibility when it acknowledged last year that was it was part of an "SEC preliminary inquiry" but then failed to disclose in July 2008 that the SEC began a formal investigation. That significant detail emerged only because Freedberg made public records requests from the state board and found that information among the pages. It's part of a larger pattern of partial- or non-disclosure that's plagued the State Board of Administration reputation as a manager of operating and retirement funds for municipalities, school systems and such individuals as Florida teachers across the entire state. Read the entire story here. Take a look at the original SEC investigative order and accompanying subpoena here.

The revelations of possible fraud come just as the State Board of Administration is busy crowing over the rebound in its investment portfolio, essentially reflecting more recent gains in the overall stock markets since March 2009. At the same time, the State Board of Administration's annual investment report for the year ended June 30, 2009, casually notes in its Oct. 16 cover letter from the board trustees that the Florida Retirement System Pension Plan "appears to have ended the year somewhat underfunded for the first time since 1997." The same cover letter goes on to say the fund is managed with the same "stringent standards as an SEC-registered money market fund."

Really? Stringent enough to be investigated for possible fraud? Read the entire annual investment report here.

-- Robert Trigaux, Times Business Columnist

[Last modified: Tuesday, June 1, 2010 12:26pm]

    

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