Correction: An earlier version of this story incorrectly reported the details of former state Treasurer Rob McCord's 2015 guilty plea in a corruption case. Contributions from businessman Richard Ireland were not cited as part of the guilty plea.
An outside investigation of Pennsylvania's $26 billion State Employees' Retirement System found that a pension trustee engaged in "questionable" conduct — but stopped short of breaking the system's weak investment-interference rules — when he urged the system's staff to meet with promoters of a small fund owned by a donor to Pennsylvania politicians.
The trustee, Philadelphia money manager Glenn Becker, a former SERS chairman, gave "the potential appearance of undue pressure and conflict of interest" when he "was unusually involved in the review process" for Pacer Advisors' Global Sales-Weighted Index fund, according to the report by a team headed by Joseph H. Jacovini, chairman of Philadelphia law firm Dilworth Paxson LLP. According to federal court testimony, staff resisted hiring the fund because they thought it charged high fees and was unlikely to deliver extra profits, compared with mainstream index funds.
In a four-page "executive summary," the special counsel also found that the pension system has few safeguards to keep its unpaid board of public officials and appointees from promoting favored investments to staff investment professionals. "It is difficult to conclude with reasonable certitude" that Becker's conduct "constituted a violation of any bright-line rule under applicable law," the report said. The Dilworth investigators concluded that SERS needs rules to "better prevent the possibility of outside interests influencing the investment decision process."
"Glenn Becker was simply trying to accommodate the process," and "never intended to override lines of authority" at the pension system, said George Bochetto, Becker's lawyer. "Like any board member, he took an interest. I think Glenn tends to be a little more hands-on than other board members." But "the bottom line on the report was that nothing was done wrong and there was no ill intent."
Lawyers for Gov. Wolf are reviewing the report, said his spokesman J.J. Abbott. SERS paid Dilworth $180,000 for its probe.
The special counsel noted that the SERS staff rightly rejected the Global Sales-Weighted Index fund even with Becker's intervention. The index was set up by Richard Ireland, a suburban Philadelphia money manager and past Pennsylvania political campaign contributor, to track big-company stocks that would be purchased in proportion to their annual sales — not their market value, as with the leading U.S. index funds.
SERS hired Dilworth to investigate after its former chief investment officer, Thomas Brier, testified in a federal corruption trial about Becker's pressure to meet with Pacer despite objections from Brier and SERS consultants. Brier said he understood from Becker that then-State Treasurer Rob McCord, who had invested other state money in Ireland-backed funds, wanted SERS money invested in the index fund, too.
Treasurer McCord left that elected job in 2015 and pleaded guilty to two felony counts of attempts to extort campaign donations from a law firm and a property-management company. In March, a federal judge dismissed charges against Ireland for allegedly bribing McCord. One of McCord's predecessors, former state treasurer Barbara Hafer, pleaded guilty this summer to lying to federal investigators about receiving contributions from Ireland.
Steps recommended by the Dilworth lawyers include "prohibiting any direct or indirect" contacts between pension board members who want to refer investment managers they like and pension investment pros who recommend investments; hiring a chief compliance officer to handle referrals; ethics training for board members; a board investment committee "to enhance the independence, transparency and quality" of pension decisions; and "more extensive disclosure" to expose possible conflicts.
The pension board "is considering policy and process recommendations from the firm for the governance manual to be finalized as part of the board's two-year governance project," said spokeswoman Pamela Hile. State Auditor General Eugene DePasquale also wants more pension-board training and disclosure.
Bochetto said Becker, in light of the special counsel's review, "would probably be a little more careful about how granular [detailed] he becomes" in discussing future investment choices. Asked if Becker would approach SERS investment-pickers at all, given the special counsel's call for a ban, Bochetto noted the full investigative report concludes "that board members should not be directly speaking with members of the audit review staff and the [Chief Investment Officer] review staff about specific products, and Glenn is going to observe that." SERS declined last week to provide the full report.
Bochetto also said Becker supports the special counsel's recommendations and "will vote for them." Becker is president of Philadelphia-based Swarthmore Group, an investment firm that has been hired and fired by state and local governments.
Becker testified in the corruption trial that his son Scott worked for a lobbying firm that Ireland used to promote his index. "It came up" in the special counsel investigation, but was not referenced in the final report because "they found it had no significance," Bochetto said.
Besides Jacovini, Dilworth lawyers who helped conduct the probe included former Common Pleas Court Judge Nelson Diaz and former prosecutor Linda Dale Hoffa.