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Florida pension agency head blurs line between state, personal business

The man who oversees $134 billion of public money has recommended investing some of it in companies run by friends or business associates, and he doesn't see any conflict in doing that.

Ashbel C. Williams Jr., the executive director of the State Board of Administration, recommended that Florida invest a proposed $100 million of public pension money in a Miami firm run by two fellow investors in a hedge fund where he used to work.

On May 25, Williams approved the investment with Bayview Asset Management, a fund that acknowledges it is "high risk'' and that profits, in part, from foreclosures on homeowners.

The agency Williams leads manages investments for some 1 million retirees and public employees and for hundreds of towns and cities across Florida.

A Wall Street veteran, Williams sometimes applies the secretive and chummy methods of the private investment world to his administration of public money. A St. Petersburg Times review of Williams' e-mails, appointment calendars and other documents found:

• Besides the Bayview deal, Williams sought SBA consideration of two other investments involving firms in which he had personal connections.

• In all three cases, he never publicly disclosed those connections. His bosses — Gov. Charlie Crist, Chief Financial Officer Alex Sink and Attorney General Bill McCollum — would not say if Williams told them about his connections.

Nor would his subordinates say if Williams made known his connections or if they felt pressure from the boss.

• Shortly after joining the SBA in 2008, Williams tightened the agency's ethics and conflict of interest rules. They require that employees avoid any action or relationship that gives the appearance of favoritism. Williams' Wall Street operating style sometimes clashes with those rules.

• Williams has financial stakes in several hedge funds, but he will not disclose details beyond the minimum information Florida law requires.

He declined to be interviewed for this story but accepted questions in writing. He did not answer the questions and instead issued a statement.

"I have never benefited personally from a decision I made at the SBA," it said. "... I have always and will continue to adhere to the highest level of ethical and fiduciary standards and all applicable laws, regulations and required disclosures.''

In a follow-up statement he added: "SBA's ethics, disclosure, and investment pre-approval policies are sound, well established and functioning very effectively."

The pension fund Williams administers is running a deficit, common given the volatility of the financial markets. The SBA has faced ongoing questions over decisions by Williams and his staff to invest pension money in high-reward but high-risk deals rather than more conservative, stable ones. Williams' Wall Street practices add fuel to those concerns.

SBA lawyers withheld many of Williams' e-mails and censored others, they said, to protect proprietary information. Several they released show former colleagues blend talk of boats, vacation homes and children with ideas for state investments.

"There is a legitimate concern whenever a pension fund official has ties to Wall Street,'' said Edward Siedle, a former Securities and Exchange Commission attorney who investigates pension fund abuses. "The solution isn't draconian. It is simply to have the pension fund official make a full disclosure about his investments."

As far as the state is concerned, Williams already made full public disclosure. Florida rules require the barest details about a state money manager's personal finances.

Siedle and former bank regulator William K. Black, a professor of economics and law at the University of Missouri, call the Florida rules inadequate because the public can't identify potential conflicts of interest.

Said Black: "There is no way for the citizens of Florida to know whether an investment is really being done in the interest of Florida or to benefit the fund manager or his cronies.''

From Fir Tree to Florida

A Jacksonville native and graduate of Florida State University, Williams, 55, has been entrenched in Florida politics for 30 years.

He was executive assistant to former House Speaker J. Hyatt Brown, deputy chief of staff to Gov. Bob Graham and the top assistant to Comptroller Gerald Lewis. He also did a stint as a lobbyist.

Williams was SBA chief for five years in the 1990s. He left for New York City in 1996, held senior posts at two financial firms and came back to lead the SBA late in 2008.

His last job before his return to the public sector was a managing director handling investor relations at Fir Tree Partners, a New York City investment firm. He was there for almost a decade.

On financial disclosures Williams filed after he rejoined the SBA, he reported financial stakes in five private partnerships. Three were Fir Tree hedge funds, two of which usually require minimum investments of $2 million.

Florida law does not require Williams to reveal how much he invested, how the values of those investments had changed or anything about his fellow hedge fund investors, and he declined to.

One co-worker was fellow Fir Tree executive Andrew Fredman.

On April 13, Fredman e-mailed Williams that they should get together when next Williams came to South Florida: "I'd love to grab dinner and catch up.'' He asked if Williams remembered "some good personal friends,'' David Ertel and David Quint, fellow Fir Tree investors.

Their company, Bayview Asset Management, and its affiliates buy distressed, "scratch and dent'' loans for cheap from ailing banks and firms trying to get troubled mortgages off their books. The company works with struggling homeowners to modify the loans and forecloses on those who can't make their payments.

In his e-mail, Fredman told Williams that "we (Fir Tree) share notes frequently'' with Bayview. Unlike the many who service mortgages who are "morons,'' Fredman said, Ertel and Quint "are far and away among the smartest/savviest folks in this field and nice, ethical honorable folks to boot.''

They "would like to call you in your official capacity,'' Fredman wrote. "I think it's a good opportunity for Florida to make money and to support a local business ... And don't forget about dinner!!!!''

Williams e-mailed back that he would be happy to talk to Ertel and Quint: "If there is some current opportunity (should be given their expertise) we might be able to do something together.''

In an e-mail to Fredman a few days later, Williams mentioned that his oldest daughter was getting married.

"Congrats on the daughter,'' Fredman wrote. "Really awesome. I would really — really — like to break bread with you. You are the only honest person (??) in politics I know!!!''

Fredman e-mailed Williams again minutes later, this time with copies to Ertel and Quint: "As I'd mentioned previously, I'd like to introduce you to my very very good friends — and fellow Florida residents — David Ertel and David Quint.''

Williams replied to all: "Andrew, Thank you, but the Bayview founders need no introduction! David and David, please feel free to contact me to discuss current opportunities.''

Williams then wrote just to Fredman: "We will break bread. Just leaving DC, after a day of congressional visits (oyyyy).''

A risky deal

Having been brought together by Fredman, Williams and Ertel scheduled a meeting a few weeks later, May 8, 2009. The evening before the meeting, Ertel sent Williams four reports prepared by Bayview, as the law requires any company show an investor.

One detailed ''important risk factors & disclosures'' about a similar Bayview private fund, describing it as "speculative,'' with "a high degree of risk and potential conflicts of interest'' and with illiquid assets, meaning they could not be easily converted to cash. "An investor could lose all or a substantial amount of its investment in the fund.''

The report acknowledged that Bayview charged substantial fees that could be "considered high ... (and) may reduce returns.''

Ertel founded the Coral Gables-based company in 1993 and Quint joined in 1999. Bayview, with more than 800 employees, markets itself as a national leader in helping struggling homeowners avoid foreclosure by reworking the terms of their mortgages. It said it finds alternatives to foreclosure for approximately two-thirds of those who default.

The company also touts its speedy foreclosures: "Bayview manages foreclosures and (real estate owned sales) faster than the industry,'' a company report said.

The report disclosed that Bayview terminated former salesman Steven Gordon in 2006 after discovering he altered credit scores to increase his commissions. A federal indictment accused him of taking more than $2.8 million in undeserved commissions on more than 2,800 loans. He pleaded guilty to a wire fraud charge and in May 2009 was sentenced to three years in prison.

After receiving the Bayview reports, Williams invited some SBA money managers to the next-day meeting with Ertel. "Apologies for not putting you on this invitation sooner,'' Williams wrote.

"Dave Ertel is one of the 2 founders of Bayview in Miami. They are very smart players in the mtge (mortgage) space ... I'll forward materials that just came in from David.''

Williams' note did not mention that the two Bayview executives were fellow investors at Fir Tree, where Williams last worked.

On May 12, Williams' top deputy, Kevin SigRist, e-mailed the boss to "compare notes'' about possible state deals with two firms: Fortress, a leading global investment firm, and the mostly unknown Bayview. SigRist wrote that Bayview should get priority attention, ''especially given their timetable.''

Williams responded: "I agree w/ Bayview priority.''

James Treanor, an SBA senior investment officer, was not convinced of the merits of the deal. The return from Bayview's existing fund was "slightly negative,'' he noted. "The track record on which to make an investment seems a little thin.''

Treanor suggested that someone from the SBA meet with Bayview's full team in Miami. Veteran SBA money manager Michael Lombardi flew down on June 21, 2009.

In July, Bayview Mortgage Capital, a similar but publicly registered fund run by the same company, filed a report with the SEC. It said companies like Bayview Mortgage could face liability for "potential violations'' of predatory lending laws. Its bottom line could suffer because of stronger consumer laws.

''As delinquencies and defaults in residential mortgages have recently increased, there has been an increasing amount of legislative action that might restrict our ability to foreclose and resell the property of a customer in default,'' Bayview Mortgage Capital said in the report. "Any restriction on our ability to foreclose ... is likely to negatively impact our business.''

In a statement to the Times, Bayview said the company is a good investment and does not prey on people, it treats foreclosure ''as a last resort.''

''Whenever possible, we want to turn a nonperforming loan into a reperforming asset,'' the Bayview statement said. ''This is a win-win for both borrowers and investors.''

What conflict?

On Aug. 14, SigRist e-mailed his subordinates, Lombardi and Treanor, and recommended "we keep the dialogue open with Bayview.'' (None of the three would be interviewed, and none responded to written questions.)

SigRist copied the e-mail to Williams, who replied that Bayview's process "seems to have been validated by performance of the mtges (mortgages) they have bought/worked on.'' Williams said he planned to talk to Fredman at Fir Tree about Bayview and wrote, "He is one of the sharpest credit guys I've ever come across.''

On Dec. 3, the SBA distributed a report to its six-member investment advisory panel — two each appointed by Crist, Sink and McCollum — that a Bayview deal was being vetted.

On Feb. 15, 2010, staff in the SBA circulated a "pipeline report'' showing that a deal to invest a proposed $100 million of pension funds in Bayview was ''pending approval.''

On May 25, an SBA spokesman said, SigRist recommended the Florida pension fund invest in Bayview. Williams signed off on it the same day.

On June 7, SigRist told the SBA's investment advisers that after a year of "relationship building,'' the staff intended to invest in a residential mortgage fund.

None of the advisers asked questions about Bayview, which according to company reports managed high-risk, high-fee funds with a former salesman sentenced to prison for fraud, and investor fortunes tied in part to foreclosing on struggling homeowners.

Andrew Biggs, former principal deputy commissioner of the Social Security Administration and resident scholar at the American Enterprise Institute, said the Bayview deal appears risky, speculative and uncertain. It's one thing for private investors to take such risk, he said, but quite another for a public pension fund that is legally obligated to pay benefits. Last year, the pension fund slipped some $15 billion in the red when measured against future obligations.

Said Biggs: "I question whether it is appropriate for a pension fund to invest in highly risky assets when the benefits the pension owes to retirees are effectively guaranteed by law.''

If the fund cannot meet its legally guaranteed obligation to some 1 million retirees and public employees, all Florida taxpayers must make up the shortfall.

Fir Tree and Bayview

Williams did not answer questions about his relationships with Fredman, Ertel or Quint or say if he was concerned about creating an appearance of favoritism by getting involved in the discussion about Bayview.

In his statement to the Times, Williams said it's important to distinguish that he is a limited, not an equity partner, in Fir Tree Partners.

"This means that I have no economic interest in Fir Tree's business. ... I do not benefit if other investors choose to invest in any fund in which I am invested.''

He likened his status as a limited partner in investments Fir Tree manages to a mutual fund in which an investor "has no participation in the profits or losses of the company managing the mutual fund.''

Outside experts said the comparison is not apt.

Mutual funds are strictly regulated and open to millions of investors. Hedge funds are mostly unregulated and open to a limited number of wealthy investors and institutions. They tend to make far riskier bets.

Executives at Fir Tree referred questions to the Abernathy MacGregor Group, a financial public relations firm.

The firm issued a statement that said "Ash does not participate in any of the profits or losses of the investment firm that manages the Fir Tree funds and does not receive any economic benefit if other investors choose to invest in any Fir Tree funds.''

Fredman, Ertel and Quint did not return messages seeking comment, and none answered questions submitted to their spokesmen.

A statement from Bayview said: "No compensation or other consideration was paid by Messrs. Ertel or Quint or Bayview to Mr. Fredman or Fir Tree for any introduction or access to any prospective investor.''

Williams' statement said he had "many valuable relationships in the investment community,'' which he noted "was a significant point of interest, and perceived benefit'' by the three-member SBA oversight board that hired him.

His title includes chief investment officer, but Williams said no single individual controls SBA investment decisions.

"Consideration and approval or rejection of any investment or strategy is neither conducted nor controlled by one person. It is a process-driven decision that includes input and required concurrence from qualified internal and external professionals.''

Outside experts said investment choices should bubble up from the professional staff and not be handed down by the politically appointed agency head.

"The danger,'' Black said, "is that (Williams') subordinates would say, 'If it comes from the boss, I guess the boss wants this to happen.' ''

The Times asked for reports that might show how the Bayview deal was vetted and recommended. Williams' staff said no.

"The SBA's investment in Bayview is still in legal negotiation,'' spokesman Dennis MacKee said. "As a result, all records and other information relating to this investment is confidential and exempt from disclosure.''

The (weak) rules

In December 2008, Williams approved a policy requiring SBA employees "avoid actions or activities that bring into question that person's independence or judgment.''

In January 2009, he approved rules designed to ensure that SBA business is conducted free of favoritism and conflicts of interest. Those rules cover purchasing and contracts but not private investments.

Williams also approved ethics policies requiring that SBA employees:

• have an "affirmative duty to promptly disclose and cure conflicts of interest.''

• "maintain a duty of loyalty to our beneficiaries and act in the best interests and for the exclusive benefit of our clients and beneficiaries.''

• avoid personal, social or business activities or relationships that ''reflect adversely on the individual's objectivity'' or create conflicts of interest, including those related to investment decisions.

Williams' statement to the Times said he implemented policies that "codified oversight and enhanced transparency.

"These policies apply to every employee, including me. When in doubt, I consult with our inspector general to assure that no violation or appearance of a violation to our various rules, regulations and policies exists.''

SBA Inspector General Bruce Meeks would not be interviewed. Responding to written questions, Meeks said Williams consulted him "on occasion regarding personal investment activity and conflict-of-interest-related matters.''

He noted: "In recognition that he has outside investments, Mr. Williams and I have discussed and agreed that any conflicts related to his investments are governed by existing policies.''

He would not elaborate.

The Times asked Williams' bosses — Crist, Sink and McCollum — about the Bayview deal and his personal finances.

All three declined to be interviewed.

Staff writer Kris Hundley, computer assisted reporting specialist Connie Humburg and Times researchers Shirl Kennedy and Carolyn Edds contributed to this report.

Paying for state pensions

Florida's State Board of Administration manages approximately $109 billion in the public pension plan that covers about 1 million state, county and local active and retired employees. These pension benefits are guaranteed by law and funded through two sources: the SBA's investment returns and taxpayer contributions. If investment returns are not enough, taxpayers must make up the difference. Florida is one of only six states in which public employees make zero contribution to their pension plans.

What is a hedge fund?

Hedge funds are private investments for the super rich. They invest in anything from stocks to bonds to commodities. Unlike mutual funds, hedge funds are not regulated by the SEC or publicly traded. Hedge funds also use leverage, or borrowed capital, with the goal of increasing return. They require a large minimum investment, which can be locked in for years. Because hedge fund managers make speculative investments, these funds often carry more risk than the overall market.

On the Web

To read the due diligence questionnaire report on Bayview and to read the statements from key players, including Ash Williams, Fir Tree and Bayview, go to

The financial disclosure form Williams filed with the state requires the bare minimum information about his investments.

SBA lawyers blacked out chunks of e-mails and documents that they said contained proprietary information. This page is from a report on the Bayview deal.

Florida pension agency head blurs line between state, personal business 07/02/10 [Last modified: Saturday, July 3, 2010 9:39pm]
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