(December 12, 2013) — The board chairman of the Pennsylvania State Employees’ Retirement System (SERS) has been accused by the state treasurer of being part of the scandal surrounding CIO Anthony Clark's conduct.
In an open letter, board member and Treasurer Rob McCord called on the governor to replace Chairman Nicholas Maiale to “improve SERS operations and business practices and restore the agency’s reputation” following accusations against the CIO.
These allegations broadly involve Clark’s investment practices, recommendations, and personal dealings, Pennsylvania Treasury Communication Director Gary Tuma told aiCIO. No further details have been disclosed to the public.
Clark has submitted his resignation and is expected to retire on December 31, 2013.
"These charges not only implicate SERS' chief investment officer, but also explicitly include the chairman of the board and the process by which investment opportunities are identified and vetted, and also the veracity with which they are presented to the board for approval," McCord wrote in the letter.
Claims of wrongdoing by the CIO and chairman were yet unproven as investigations got underway, but McCord argued that the system's reputation and future health depend on an immediate leadership change.
This call for Maiale’s removal follows a December 11 executive meeting, during which McCord’s proposal to suspend pending investments was dismissed in a seven to four vote.
“Despite my effort to seek additional time for the members of the board to be fully informed of the scope and seriousness of the allegations as they related to pending investment proposals, the chairman of the board pressed for the immediate consideration of all of the proposed allocations on yesterday’s agenda totaling $185 million in commitments,” McCord wrote.
According to SERS, the board committed up to $25 million to the real asset class with Lubert-Adler Real Estate Fund VII and an additional $160 million to alternative investments.
McCord went on to argue that Maiale’s decision to pursue these investments undermines public and member confidence in the retirement system.
“While the legal and investigatory process can and must be allowed to proceed at its own pace, SERS cannot wait,” McCord wrote to Governor Tom Corbett. “This is an opportunity for you to help restore the reputation of the board by immediately replacing the current chair and selecting someone with a proven record of independence, transparency, and commitment to restoring public trust.”
However, Maiale defended SERS’ move forward: “It is important that we advance with the investment items on the agenda. The need to pay benefits hasn’t stopped, so it is important that we keep the portfolio working for the benefit of our members.”
SERS has put Senator Charles McIlhinney, Jr. in charge of the search for a new CIO. It also authorized its internal audit division to recommend a third-party investigative professional to “proceed with regard to allegations as well as to ensure an independent and exhaustive review of SERS’ due diligence process within the investment program.”
Tuma, the treasury's communication head, said McCord has had several areas of concern about Clark since the CIO came on board in 2011.
“After watching him for a number of months, the treasurer became concerned with his investment practices—the wisdom of his investments,” Tuma said. “Investments were fee-heavy, with many funds-of-funds and overall management practices were lacking transparency.”
He also said performance reports were repeatedly pulled from board meetings and audio transcripts of meetings were frequently unavailable to McCord.
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