David Sirota: Leaked Docs Show How Wall Street Extracting Massive Fees from Public Pension Systems

[Hissyspit]

@davidsirota: BREAKING: Leaked documents show how Wall Street is extracting massive fees from public pension systems http://t.co/qqVxLMz80l

http://pando.com/2014/05/05/leaked-docs-obtained-by-pando-show-how-a-wall-street-giant-is-guaranteed-huge-fees-from-taxpayers-on-risky-pension-investments

LEAKED: Docs obtained by Pando show how a Wall Street giant is guaranteed huge fees from taxpayers on risky pension investments

BY DAVID SIROTA
ON MAY 5, 2014

- snip -

Thanks to confidential documents exclusively obtained by Pando, we can now see some of the language and fee structures in the agreements between the “alternative investment” industry and major public pension funds. Taken together, the documents raise serious questions about whether the government employees, trustees and politicians overseeing major public pension funds are shirking their fiduciary responsibilities under the law when they are cementing “alternative” investment deals.

The documents, which were involved in a recent SEC inquiry into the $14.5 billion Kentucky Retirement Systems (KRS), were handed to us by SEC whistleblower Chris Tobe, an investment consultant and former trustee of the KRS. Tobe has also written a book — “Kentucky Fried Pensions” — about the scandalous state of the Kentucky public pensions system.

The documents provided by Tobe (embedded below) specifically detail Kentucky’s dealings with Blackstone – a giant Wall Street investment firm which has deployed a platoon of registered lobbyists in Kentucky and whose employees are major financial backers of Kentucky U.S. Sen. Mitch McConnell (R).

The Blackstone-related documents, though, don’t just tell a story about public pensions in Kentucky. The firm, which just reported record earnings, does business with states and localities across the country. The Wall Street Journal reports that “about $37 of every $100 of Blackstone’s $111 billion investment pool comes from state and local pension plans.”

MORE AT LINK

[xchrom]

1. du rec.

[JDPriestly]

2. Funny! I had a weird dream last night.

I dreamed there was a creepy woman who endeared herself to seniors and then took $20 from each senior and handed back only $10.

It was so strange. Why in the world would I have such a dream.

It was quite a nightmare. There was more to it than I can recall.

But, then I wake up to read this report.

Wall Street needs new regulations and laws. They should be prevented from stealing from the vulnerable.

[abelenkpe]

13. They should be prevented from stealing from the

Vulnerable. Who will prevent that? Politicians who rely on campaign contributions from wall street? I still dint understand why high frequency trading is legal. The system is corrupt

[Enthusiast]

52. That's what Pete Peterson want to do to you.

And worse. It ain't called predatory capitalism for nothing.

[Octafish]

3. Welfare for the Wealthy!

Austerity All the Time for the Proles.

[blkmusclmachine]

41. +1

DC is a racket.

And they've got NSA, license plate reading cameras everywhere, and 30,000 Drones patrolling your neighborhood!

[L0oniX]

4. Damn coward leakers with stripper poll dancer girl friends.

[zeemike]

5. Not leaker's but traitors.

To the racketeer class.

[L0oniX]

8. racketeer class or government ...what's the dif n/t

[zeemike]

22. The same difference between the Mafia boss and the soldiers I guess

One gets the large share of the money and the other one enforces the system.

[blkmusclmachine]

42. +1

It's the fascism, bay-bee

[freebrew]

6. +1...what you said.

[Jefferson23]

7. Fucking thieves..tell me how they are not. n/t

K&R

[blkmusclmachine]

43. 1 of the 14 signposts of a fascist government:

Rampant Cronyism and Corruption - Fascist regimes almost always are governed by groups of friends and associates who appoint each other to government positions and use governmental power and authority to protect their friends from accountability. It is not uncommon in fascist regimes for national resources and even treasures to be appropriated or even outright stolen by government leaders.

http://rense.com/general37/char.htm

[Ichingcarpenter]

9. DOJ Holder is sending FBI agents to

The Ukraine....... that should show those crooks.

[1StrongBlackMan]

14. shouldn't the focus of your ire but ...

the state and federal legislators that have yet to close these, apparently, legal loop-holes, and/or the fund trustees, for abdicating their fiduciary duties; rather than the tired old "damn you Holder" for not bringing meritless cases against lawful, though unethical, activity?

[Ichingcarpenter]

24. No.... It is Securities Fraud

A type of serious white-collar crime in which a person or company misrepresents information that investors use to make decisions.
The types of misrepresentation involved in this crime include providing false information, withholding key information, offering bad advice, and offering or acting on inside information.


Corporate And Securities Fraud
Corporate and securities or investment fraud impact our financial markets and rob victims of their hard-earned savings. The Western District of the Department of Justices aggressively prosecutes accounting fraud, insider trading, Ponzi schemes, market manipulation, securities fraud, mail fraud, and wire fraud.

[1StrongBlackMan]

25. No, It's not ...

not by any past or current interpretation of securities law. Perhaps, you can point me to precedent?

[closeupready]

10. Pension funds are commonly known as 'dumb money'

i.e., idle money in search of a return - sometimes gainful, but almost always enough to account for inflation. The 'dumb' part is accounting for the fact that most pension fund administrators are not the brightest bulbs, and can easily be fooled. Also, they are compensated less as a function of how the fund's investments perform, and more as a matter of seniority.

[Jesus Malverde]

11. bump... nt

[malaise]

12. Until these criminals are sent to prison

this madness will continue

[1StrongBlackMan]

15. Sent to prison for what crime? ...

unethical conduct, misfeasance, and/or stupidity are not crimes.

[JDPriestly]

16. People who handle pension fund money at any length should owe a fiduciary duty to the

potential and actual pension recipients.

[1StrongBlackMan]

19. Breach of fiduciary duty is a tort (i.e., Civil wrong) ...

that rarely rises to criminal conduct. ETA: The only cases I am aware of that BoFD rose to criminal conduct are cases where the fiduciary was an activity party in a conspiracy to defraud. As such, the AG would have little standing to bring as an action ... the proper party would be the pension-recipients (e.g., the public employee unions, individual or collective pension recipients, individual or collective employees paying into the fund).

[ronnie624]

29. In other words, corruption is designed into the system.

Being legal does not necessarily lend something moral legitimacy. Racism is perfectly legal as well, but few on this board would have any trouble recognizing blatant examples and condemning them accordingly. Far too many people are willing to accept the 'legal' corruption of our system in the name of political expediency or simply because "that's just the way things are".

[1StrongBlackMan]

30. That is not at all ...

what I am saying. In fact, based on the article (and disclosures), it's fairly apparent that there has been a BoFD. However, I doubt, at this point, there is evidence of criminal wrong doing; only Civil wrong-doing.

I believe, and have argued on this board, in general, the best resolution for these kind of violations are NOT to send someone to jail; but rather crawl back any and all profits, payments, fees wrongfully collected. In this case, pension-fund participants should file the tort (naming the trustees, personally) and compelling disclosure of the funds' terms and demanding disgorgement.

The way you stop the systemic abuse is not to go after the people taking advantage (there will always be those looking to make a shady buck); but to remove the profitability of taking advantage.

[haele]

26. Unfortunately, this country defines theft strictly as person to person theft.

Corporate misrepresentation, or other actions with an intent to unduly profit on the vulnerable, is not considered theft.
Unethical Financial and investment vehicles developed to blow up in the investor's face while providing maximum profits for the organizations that developed them is considered similar to the model of Caveat Emptor - the "If I found out you came into $100K, I could walk in and offer to sell you a Porsche; you don't need to buy it" school of thought. The assumption is that everyone that has $100K is the same; whether it is a highly driven hedge-fund manager who makes close to 7 figures a year and that $100K is a quarterly bonus, or it's the no better than average high school grad comfortable living paycheck to paycheck in Podunkia, who just came into $100K windfall.

Similar to pension and retirement funds; the average person, even the average accountant or "budget manager" is used to dealing with current or short-term gains and losses and may still miss fine print on the bottom of page 32 of the prospectus that says "we will assess between 1% to 3% of any gain depending on size of account in accordance with chart 4.b.12 (Value Determination of Account Categories) that will be assessed prior to any disbursement before taxes as a cost-of-money handling fee on that gain". (And yes, I have seen that written in small print on a MLM "retirement vehicle" one of those luckless co-workers was trying to sell me after work...)

Too often the amount of information on little indeterminate fees that is often "mistakenly" left off the cost breakdown table or gathered together under one happily unhelpful "potential assessment fees" category that can't be nailed down. Yes, the corporation that is selling the fund will get a slap on the wrist once the "mistake" is identified or their potential fees schedule is shown to be wildly under-rated, but in the meantime, they have skimmed millions of dollars off the backs of people who's upper limit financial understanding is at best how to use an amortization calculation in an Excel spreadsheet.
There's often some masters/doctorate level math going on in financial instruments; and most people don't have the background or the time to get the background just to understand what these yahoos are selling.

While pushing an inappropriate financial product can be prosecuted as financial abuse of the elderly or the recognized mentally challenged, it's not considered abuse for people who fall under the category of "not experienced enough" to recognize a confidence artist that has enough legal knowledge to not step over the regulatory line between "poorly thought out advice" and "misdirection or withholding information with intent to unduly profit".

So, when in reality does "undue profit" become theft from the average person rather than theft from the mentally incompetent? When does the intent to mis-direct and suck as much money from trusting "fools" or "rubes" that are not yet elderly become theft or racketeering?

What level of profit is allowable before it becomes profiteering or outright theft? This isn't just about funds, it's about accepted practice of making huge amounts of money off percentage fees off externally developed awards or gains that after a service for access to a market or source of gain has been rendered.

I have no problems pay a fee for setting up an account and access to that market, or paying an equatable percentage for the management of my money in that market; I do, however, have issue with paying a lot of little additional fees just for "monitoring" or "activity" or to even to access my money and my gains; that management percentage should cover pretty near all the fees I would ever accrue. Especially since if I'm losing, the company that is handling that money doesn't scale back the fees they are charging me.
They are taking responsibility for investing my money, or acting as my agent, and they made the mistake or miscalculation with my money. But even when they make a mistake, they aren't liable even if they bankrupt me.

"Sorry, the market turned and we lost most of your money. Too bad for you the loss ain't equal. We aren't going to eat this just because you don't have enough money left over to pay us; we're in business to take care of the shareholders first and provide a service second. We get our money first, you get whatever's left over or you owe us".

As resources to live comfortably decrease, it's all about gambling for a big payday to fund a retirement that is beginning to cost the average person over a million just to be able to pay for an additional 25 years to sustain them, their health, and household after they can no longer bring home a living wage paycheck. People can say all they want about "well, should have planned for the future", but even in the bad old days, "the future" was a difficult thing for most people under thirty to grasp while they were trying to figure out what they had to do in "the now".

That is where the majority of profiteering, and frankly, potential theft comes in - the period the average person discovers mortality and that they can't depend on a legacy to provide for them when it comes time for them to retire...

It's one of those situations where so long as the regulations are lose enough that "it's legal", you're going to see a lot of gambling with other people's money and skimming off the top.

Haele

[LittleGirl]

27. thanks for that post

it should be an OP. Seriously, that was a great post. cheers.

[erronis]

33. +1

[druidity33]

35. wow, that's a lot of good info...

i agree with the other poster... this should be its own OP.



K&R

[blkmusclmachine]

44. It pays to be a part of the family

$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$
$$$$$$$$$$$$$$$$$$$$$$$

[Snotcicles]

17. It's like robbing the blind. nt

[closeupready]

18. Yes, that is a very fitting metaphor.

[Snotcicles]

20. There are no limits to the depths they'll stoop. nt

[Tierra_y_Libertad]

21. Some will rob you with a six-gun, And some with a fountain pen. Woody Guthrie

[mahatmakanejeeves]

23. Google "Borzi," as in Phyllis Borzi, the Assistant Secretary of Labor for Employee Benefits Security

Last edited Fri Nov 28, 2014, 10:19 AM - Edit history (1)

Please permit me to light a single candle rather than curse the darkness.

Google "Borzi," as in Phyllis Borzi, the Assistant Secretary of Labor for the Employee Benefits Security Administration.

If you never do anything else today, watch this video. It was broadcast on April 23, 2013.

Tonight on FRONTLINE: The Retirement Gamble

Phyllis C. Borzi appears in the show.

Please see the article about excessive 401(k) fees in the September 2013 issue of Consumer Reports

There's a ton of information here:

Employee Benefits Security Administration

Understanding Your Retirement Plan Fees

Maximize Your Retirement Savings - Tips on Using the Fee and Investment Information From Your Retirement Plan

Disclaimer: I have money in Vanguard funds.

Vanguard offers funds with active management, Jack Bogle's beliefs notwithstanding. It's like your grocery store. You can buy broccoli there, and you can buy chocolate-covered marshmallows there. They leave the choice up to you.

Best wishes to all.

[Jemon]

28. The 1% keeps growing powerful

Unbelievable

[ellenfl]

31. chris and rachel should be all over this tonight. go david sirota! eom

[bvar22]

32. Gee...ya think this game is rigged?

Wall Street will get away with massive wave of criminality of 2008 - Statute of Limitations
http://www.pbs.org/wgbh/pages/frontline/business-economy-financial-crisis/untouchables/supreme-court-ruling-a-blow-for-future-financial-crisis-cases/

"Obama Admin’s TPP Trade Officials Received Hefty Bonuses From Big Banks"
http://billmoyers.com/2014/02/20/obama-admin%E2%80%99s-tpp-trade-officials-received-hefty-bonuses-from-big-banks/



...but if we all vote for Hillary,
she'll straighten this out!

[blkmusclmachine]

39. ".. if we all vote for Hillary, she'll straighten this out!"

[Enthusiast]

51. Right!

Good thing Hillary is here to ride to the rescue.

[pa28]

45. I have total faith in Hillary's commitment to the public despite the $200k speaking engagements.

GOTV!@@!! 2014 and beyond!1

[JHB]

34. And just to remind everyone, Blackstone was founded by Pete Peterson...

...a billionaire who's been at the forefront of funding efforts to dismantle the Social Security system.

Not surprisingly, under various privatization schemes, guess which company your be one of the prime contractors for managing tens of millions of private accounts? Starts with a B...

[Enthusiast]

50. Imagine that.

[jtuck004]

37. We've known about this for years. But we elect the people who write the laws

that make it possible. Hell, we used to have usury laws in states that got rid of them so they COULD do high interest screwing of consumers.

We could change it. There are 312,000,000 of us, only about 4 million of them. (99% vs 1%). But first we have to realize we are slaves, and decide that freedom is more important than cable. And I know the costs - after the Civil War a fair number of former slaves died, or wound up in sharecropper agreements that would never free them, or had not enough education to make it, no assets to build with.

On the other hand, we have a fairly well educated group, yet fear still seems to take hold.

Used to think we might figure that out, but I no longer think so, at least not before the next really big disaster.

[Enthusiast]

49. +1

Legislative failure. Law enforcement failure.

[blkmusclmachine]

38. MUST.

LOOK.

FORWARD.

[WillyT]

40. HUGE K & R !!! - Thank You !!!

[defacto7]

46. Wall Street, the banks, the oligarchs, the recipients

of massive capitol gains and pilfered finances of corporations through grotesque salaries and fees....

I ask anyone...

Is there a list of names, positions and amounts received by these people? I'm not talking about the 88 richest which are the famous ones but the 5000 or so who hold hundreds of millions to billions under pretenses that can be equated with the systematic grand larceny of the American people? Where is their wealth stored? How much is just data, how much is real property and how much is commodity?

I think we have a right to know these things. If there is danger involved for these people by that general knowledge, I'm sure they can take their share of the responsibility for their grandiosity. We should know, because we need to make sure there's no hiding behind a wall of secrecy as if they are entitled to their billions and we are entitled to our dimes. They are human beings, we are human beings. They are not privileged emperors over our lives that hide in secret. We need to know how they support the people. There is only so much anonymity that can be allowed all of us... OOOps, there is NO more anonymity for any of us. And with that, there are "responsibilities" that follow hand in hand with apathy and sociopathy.

It's time we knew.

[defacto7]

47. Blackstone....

Beware... they are one the big 4 corporations that own everything.. and I mean everything. Look deep into their structure and you will see connections and names that are blindingly hard to fathom.

[Enthusiast]

48. This is an example of

"corruption from sea to shining sea."

This sort of systemic pension fraud could be stopped in its tracks if someone got a hefty prison sentence. Someone as high up on the food chain as we could get.

[1StrongBlackMan]

53. No it wouldn't ...

what would stop this corruption for pension-participants to file suit against the trustees (named personally) that compels disclosure of the terms and demands disgorgement of all profits and improper fees. Economic wrongs can never be solved until one makes the wrong economically unprofitable.

[Octafish]

54. Except the corporations have unlimited funds and unlimited time.

Whereas people only have so much and only live so long.

As for the arbiters in court, remember one ratio - 5:4.

[1StrongBlackMan]

55. I fail to understand your point ...

Yes, jailing an executive for life will prevent THAT executive from doing financial wrong again; only to be replaced by the next executive. Remove the profits generated by "head I win/tails you lose" contract terms by requiring transparency in pension agreements ... just like every other public contract, and trustee accountability and the problem goes away ... or, really, just changes as corporations seek other corners to cut.

I, also, don't understand the (presumably, SCOTUS) "5:4" reference. The SCOTUS would be unlikely to touch state-level regulations prohibiting secret public contract terms/promoting transparency of public contracting.

[Octafish]

56. Things from the states eventually get kicked up to SCOTUS.

And corporations, unlike people, have all the time in the legal world.

Since deciding Bush v Gore, SCOTUS have established a solid track record of siding with money and power, in case after case.

When was the last time a little guy bringing suit against a corporation for wrongful termination, sexual harrassment, age discrimination or other wrong been victorious before SCOTUS?

Even the People of Alaska saw the multibillion judgement against EXXON Mobil reduced to a small fraction over the EXXON Valdez disaster.

http://blog.oregonlive.com/breakingnews/2008/06/us_supreme_court_cuts_exxon_va.html

[1StrongBlackMan]

57. But these suits wouldn't be "little guys" ...

they would be all public employees (Unions) against the trustees; and/or, all local, state and/or the federal government (and the Trustee to protect themselves), defending transparency regulations in public contracts.

I understand the cynicism/skepticism with regard to the SCOTUS' recent reluctance/adversion to precedent; but, again, I doubt they would even hear such a case because there is about a century of case law that supports the transparency of public contracts.