Rhode Island Governor Gina Raimondo’s 13-year “Loser’s Bonus” paid by the state pension is not Wall … [+]
Text from January 31st speech at Rally for Pension Justice, sponsored by the Rhode Island Retired Teachers Association.
I’d like to start by revisiting the remarkable story about how one lucky Rhode Islander got a $125,000 bonus from your state pension.
A $125,000 bonus a year—every year for the past 13 years from a pension that she claimed could not afford to pay COLA benefits promised to pensioners.
· A $125,000 bonus regardless of her performance—no matter how badly she performed.
· Plus, plus, plus, the potential to receive millions a year more—millions—from the pension if her performance was even AVERAGE.
· Even average.
The only reason she has not pocketed millions more than her $125,000 per year minimum, which I’ll call a “Loser’s Bonus” (a bonus even losers get) is because her performance has been far below average.
So, onto our story…
In 2007, Rhode Island current governor and former state treasurer, Gina Raimondo was a co-founder and partner in a very small local venture capital firm with very little money under management and a very short investment track record.
Miraculously, Gina succeeded in convincing the $8 billion state pension to invest $5 million in a brand new fund her nascent, unproven firm was offering called the Point Judith Venture Fund II.
Bear in mind, her firm only managed $15 million at the time it made its sales pitch to the pension and only since 2001.
Somehow, a 5-year track record managing $15 million was good enough to persuade the pension to invest $5 million with her. The fact that she had a billionaire hedge fund investor in New York back-stopping—doing the heavy lifting—for her small local Rhode Island firm was touted prominently in the sales presentation to the state pension.
Even more miraculous and better still for Gina—but not for you or the state pension—the pension agreed, for some unknown reason, to pay Gina’s firm a higher fee than it asked for— 2.5%, instead of the 2% fee stated in the presentation booklet.
I have reviewed both redacted copies of the presentation booklet provided to me in 2013 and unredacted copies provided to The Providence Journal, which ProJo shared with me.
It bears mentioning that 2.5% is significantly higher than venture capital industry standard fees of 2%.
It was truly a marketer’s dream—once-in-a-lifetime event—a client willing to pay even more than asked!!
More than industry standards!!
In my 35 years of experience and $1 trillion in forensic investigations, I’d never seen such generosity before or since.
Let me state the obvious: this was not business-as usual, this was not a typical Wall Street deal. The investment in Gina’s fund was an exception to the normal rules of prudent pension investing where substantial assets under management for extensive periods of time with impressive investment results are required.
Gina had none of the above.
Since Point Judith Capital was a small, unproven money manager at the time of the investment by ERSRI there is simply no reason to believe the firm should have commanded a higher fee than Wall Street’s best and brightest.
No reason at all.
Yet it must have been a happy day for young Gina Raimondo.
Better still for Gina, prior to entering politics, she was “gifted” by her friends at the firm with an undisclosed ownership interest in the very same fund the pension paid millions to invest in.
She paid nothing for her shares- the state pension paid $5 million.
Gina was blessed with what I’ll call a “gift keeps on giving”—giving money to her year-in and year-out, that is—for far longer than she ever dreamed—no matter how badly her Point Judith fund underperformed.
The investment was supposed to terminate after 10 years—three years ago, but has been extended by Gina’s pals who invested in the fund, including your current state Treasurer.
Let me rephrase that statement:
We have been told that investors in the Point Judith Venture fund approved—in secret—extending its life in a manner consistent with applicable law.
I don’t know if that’s true or not.
No one has ever been allowed to see the secret vote, or even any of the top secret agreements the pension may have signed with Point Judith which may have permitted extensions of the life of the failing fund under certain circumstances potentially forever.
By extending the life of the long-suffering fund, Gina has been able to collect three more years of fees and, equally important, avoid a final accounting of the performance of the fund.
If the pension were to sell the Raimondo investment today, it would almost certainly result in a significant loss.
If you believe, as I do, that something is worth what you can sell it for today, then the Point Judith investment is almost certainly worth less today than the pension says it is worth. I don’t know for sure because the pension won’t tell me what it can be sold for today.
And that should tell you something.
Again, this state of affairs is not Wall Street business-as-usual. This 13-year ailing investment is an exception to the normal rules.
Bear in mind, the $125,000 a year “loser bonus” Gina has received from your pension—every year she’s been an elected politician, is in addition to her $100,000-plus annual salary as governor and her similar previous annual salary as treasurer.
I’m sure most of you are familiar with this story about Gina selling a $5 million poor-performing investment to your state pension. It’s in the news at least once a year these days—every time the life of the struggling fund is extended yet another painful year.
I’m revisiting the story today to point out the perversity of what Gina actually orchestrated.
This politician created a scheme that would ensure—
· from day one, once she assumed elected office, she would receive an annual $125,000 supplement to her $100k state salary from the pension;
· even as she worked to slash the annual benefits participants in the fund received—workers who—unlike her—actually paid money into the pension!
And her audacious plan worked. She has pocketed a $125,000 annual MINIMUM supplement to her income or bonus from the underfunded state pension every year she’s been in public office!
She must be giddy. Let’s call her Giddy Gina.
As the nation’s leading expert in pension forensics who has done over $1 trillion in investigations nationally, Gina’s intentions have always been obvious and the flaws in her so-called reasoning glaring. She has never been interested in what’s best for the state pension or Rhode Island. Her intent has always been to use the state and pension assets to further her national political and business aspirations. The woman knows nothing about managing money or pensions and the results of her losing hedge fund gamble speak for themselves.
Since I don’t have subpoena powers or access to all relevant documents, I don’t know all the answers to all the questions swirling around:
· Gina Raimondo’s personal financial dealings;
· Political campaign contributions she has received from Wall Street billionaires;
· Gambling and losing over $500 million of state pension money in hedge funds;
· Wall Street schemes potentially looting your pension.
But I do know the voluminous questions that state and federal law enforcement and regulators, as well as pension stakeholders like you should be asking.
I promise you that to this day, I continue to talk to law enforcement and regulators about investigating these matters. And, as you may have heard, these authorities do, in fact, listen to me from time to time and reward me when I assist in prosecuting wrongdoers.
I also know that the truth about Gina’s so-called pension reform is being deliberately concealed from Rhode Islanders and the world.
When Gina assumed elected office, she ushered in an era of unprecedented secrecy in Rhode Island. And her minion, General Treasurer Seth “Kid” Magaziner has continued her shameful tradition of being complicit with Wall Street, concealing mismanagement and widespread pilfering of state pension investments.
The Kid is not the prince of transparency he would like to believe, and would like you to believe, he is.
As some of you may recall, in 2013, four open-government groups – Common Cause Rhode Island, the state’s chapter of the American Civil Liberties Union, the Rhode Island Press Association and the League of Women Voters of Rhode Island sent a letter to then-Treasurer Raimondo voicing their concerns regarding the Treasurer’s strategy of withholding hedge fund records.
These open-government groups believed that since the financial reports are paid for with public funds and detail how the state is investing the public’s money, they should be made public in their entirety; further they found “troubling” then-Treasurer Raimondo’s decision to allow the Wall Street firms to decide what information to release.
Seven years later, Raimondo’s era of pension secrecy in Rhode Island persists.
Where are these four open-government groups now? Are they willing to join in an effort to reinstate or enforce Rhode Island’s public records laws? It’s time to reach out to them and ask the question.
Now Gina, her minion Kid Magaziner and their billionaire Wall Street backers claim that withholding information from the public, benefits the public.
That’s right—they claim lack of public scrutiny is good for the public.
Secrecy is good, transparency is bad.
You should trust Wall Street with your retirement savings, says Gina and the Kid, without public scrutiny, without accountability.
They say that if the pension doesn’t agree to Wall Street secrecy demands, the “best” deals these billionaires have to offer workers will not be available to the pension and the pension will suffer.
Of course, these disingenuous arguments are meant to scare the public into agreeing to Wall Street secrecy demands. They make no sense at all.
In a democracy, public monies should always be subject to public scrutiny. If Wall Streeters can’t agree to follow the laws that apply to public pensions, let them peddle their dicey deals in Vegas to gamblers willing to lose it all—not state pensions with a legal, fiduciary duty to be responsible when investing for the retirement security of millions of workers.
Further, as Rhode Islanders know all too well, Gina and the Kid’s 7-year gamble on Wall Street’s most costly, riskiest investments has not worked out.
Pension performance has not improved.
These costly investments have only enriched already fabulously rich Wall Streeters. Your COLA—which should never have been cut—is no closer to being restored 7 years later, after losses exceeding half a billion dollars.
And some of you may recall that before Gina even entered into her $2 billion hedge fund gamble, the world’s greatest investor, the Oracle of Omaha, Warren Buffett said, DON’T DO IT.
DON’T GAMBLE ON HEDGE FUNDS.
Gina knew better. Kid Magaziner knows better. They have ignored the advice of Warren Buffett.
Even if… you believe that certain pension investments may… under certain circumstances be kept secret from the public—which I do not believe—nevertheless, the 13 years of secrecy surrounding Raimondo’s hugely underperforming Point Judith fund stretches credulity.
Again, this is not Wall Street business-as-usual. This is an outrageous exception to the rules of normal pension prudence.
It’s a deal so drenched in obvious political foulness that it reeks. And it’s gone on for 13 years now.
The need for public scrutiny of this particular deal is unquestionably most acute.
On the other hand, the potential harm from releasing the information regarding this single, highly-unusual, politically-charged deal is non-existent.
Believe me, Wall Street won’t care one iota if the details surrounding one highly unusual—not to mention improbable—politically-charged, failing investment are made public. No dangerous precedent would be set by exposing Gina’s folly—only Gina would suffer.
By way of example, let’s talk about another case I was involved with years ago involving rare coins, beany babies and pension secrecy.
Let’s take a lesson from history.
In 1998, the $10 billion Ohio Worker’s Compensation fund allocated $50 million to a fund that was operated by certain investment managers that contributed heavily to Republican candidates. (In Ohio, unlike Rhode Island, pay-to-play pension schemes generally involve contributions to Republican elected officials.)
The $50 million fund supposedly invested in rare coins and collectibles including, yes, beany babies. As a result of diligent investigative reporting by local media, the Toledo Blade, the fund manager was sued by the state on behalf of the OBWC.
The Ohio Supreme Court ruled that the “coin-fund” records were public record and should be released to the public, rejecting the argument that the information was “trade secrets” and exempt from the Ohio Public Records Act.
The world did not come to an end by making the records of this highly unusual, politically-charged investment open to public scrutiny. Business-as-usual on Wall Street has not suffered over the intervening 15 years, to my knowledge and the OBWC fund is still able to access Wall Street’s “best” deals—if you want to call them that.
Now, I’m not saying that Gina’s fund is doing anything wrong. I, like you, have no idea what it’s doing—other than published reports of unimpressive performance.
What I am saying is that, due to the Governor’s involvement in making the sale of the unproven investment to the pension and collecting fees from the fund over the past 13 years, not-to-mention the possibility that this fund could continue for another 13 years, there is a compelling public interest in knowing all about Gina’s fund.
You need to know.
To my knowledge, there are no “trade secrets” here that merit protection. Rhode Island Access to Public Records laws should require disclosure.
I would encourage you to reach out to the four open-government groups that years ago questioned Raimondo’s secrecy policies.
I would also encourage you to reach out to your new AG on this narrow public records issue: Gina’s fund.
If the open-government groups and your new AG are unwilling to take action, you may need to hire a lawyer to represent you.
I am not that lawyer but I’d be happy to assist whomever you engage.
Again, you need to know the facts. This is not business-as-usual for state pensions.
In conclusion, I am confident in the findings of my initial 2013 forensic investigation of so-called pension reform in Rhode Island, which was funded by Rhode Island Council 94 of the American Federation of State, County and Municipal Employees. I want to thank Michael Downey, president of AFSCME, for going out on a limb to commission the first-ever forensic investigation of a state pension—anywhere.
That initial damning review, supplemented by two more in-depth internet crowdfunded investigations—the first crowdfunded investigations of a state pension in history—established that Gina Raimondo’s so-called pension reform amounted to nothing more than a wealth transfer: 3% workers COLAs were slashed to pay Raimondo’s supporters, Wall Street billionaires, fees of 4% ($80 million + per year) to underperform. Total cost/total loss- over $500 million.
The Rhode Island Retired Teachers Association has continued to keep the effort alive, with rallies such as this one, sending letters to the former RI AG, Massachusetts Senator Elizabeth Warren, the SEC, FBI and DOJ.
Rhode Islanders should be proud that you blew the whistle on the greatest financial crime in the history of this state and sent these forensic reports to regulators and law enforcement. You were the first to call-out pension looting—which is now a global pandemic.
It’s often said “you get what you pay for.” When it comes to investing with Wall Street, more often than not, that’s simply not true.
In Rhode Island, in states round the country, and countries around the world gambling in alternative investments has meant workers paying exponentially more to Wall Street for less—poor, not better, performance.
By now, hopefully you know that regulators and law enforcement place a high value on my insights.
For what it’s worth, there is no one who knows more about pension looting than I do. I can now say – with the publication of Who Stole My pension? How You Can Stop the Looting—I literally “wrote the book” on pension looting.
I’m here to tell you once again, what happened here in Rhode Island under the guise of “pension reform” was egregious and wrong.
So, you have two choices. Knowing that you are right, you may choose to do nothing about the wrongdoing. Or you can continue to fight the good fight.
Let me remind you that my well-publicized recent whistleblower wins came only after years of hard work—approximately 7 years.
During that seemingly endless waiting period when I knew I was right but seemed to be getting nowhere, I often recalled the words of one of the greatest writers of our time, Samuel Beckett:
“I can’t go on…. I will go on.”
And that is what you must do.
Since the looting of your pension is still going on, so must you.