2 high executives go away enormous Pennsylvania pension fund amid FBI and SEC investigations

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HARRISBURG – After months of controversy and an ongoing federal investigation, Pennsylvania’s largest pension fund announced Thursday that its top two executives were leaving their jobs.

With no explanation and after a session closed to the public and the media, the PSERS board said that executive director Glen Grell, 64, and investment chief James H. Grossman Jr., 54, would both retire.

The agency said Grell will step down and take an advisory role on the $ 73 billion fund later this year. The board said little about this or the future of Grossman during its Thursday morning meeting. Grossman, who pays $ 485,000 annually, is the highest-paid employee in the state government to pay more than double the governor’s.

Your departure from PSERS comes as a scandal that has been reveling around the agency for eight months and has gained considerable momentum.

Two weeks ago, an outside law firm hired to audit the fund said it was all but complete its investigation and that the results would be detrimental to some of the fund’s employees. The company didn’t name anyone who would be criticized.

The couple’s tenure was marred by the Fund’s admission in March of mistakenly assuming an incorrect and inflated investment performance figure, a statement that prompted a continuation of the federal criminal investigation and investigation by US financial regulators.

The 15-person volunteer board passed a new, lower number for fund profits in April, an embarrassing reversal that in turn forced them to increase the pension plan contributions of more than 100,000 professional teachers and other school staff. This was driven by a state law that said teachers should share the pain if the plan’s performance is not achieved.

The botched bill debacle was accompanied by a growing division on the board of directors as dissidents, including current and former Pennsylvania treasurers, castigated the investment strategy pursued by Grell and Grossman. Critics said the strategy was too expensive, too illiquid, too opaque – and too unprofitable.

They complained that PSERS had invested far too much money in fee-paying hedge funds and venture capital projects and other “alternative” financial instruments that are not sold on the stock exchange.

The fund rebounded along with the global economy in the last financial year and posted a record return of 25%, a massive increase from the almost unchanged return of 1.1% in the previous year.

Still, plan performance lagged behind more than a dozen other public funds and was well below the S&P 500 stock index’s 38% increase.

In June the dissident bloc attempted a first attempt to oust Grell and Grossman on the board, but failed and garnered six votes to dismiss them, two close to a majority. As a sign of the couple’s declining influence, the entire board of directors consistently rejected the investment strategies of the executives in the following votes.

Grell, a lawyer, was named executive director of the pension plan in 2015. He previously served as a Republican in the State House for 10 years, representing a district in Cumberland County south of Harrisburg. His annual salary at PSERS was $ 227,000.

Grossman, who has a degree in accounting from Elizabethtown College, has worked on the retirement plan for nearly a quarter of a century and became the chief investment officer in 2013. He led a highly paid team of 50 investment advisors, including two alternates, who each paid $ 399,000 a year.

Board critics also challenged and eventually restricted spending on luxury travel by Grossman’s employees, who flew around the world to review fund investments. In an April article, The Inquirer highlighted a range of ultra-expensive airfares and hotel stays by staff. The trips were booked by vendors who did business with the fund.

PSERS (Public School Employees’ Retirement System) is one of the 25 largest public retirement funds in the country. Every year it sends $ 6 billion in pension checks to 250,000 former school employees. Last fiscal year, it was backed by payments of $ 5 billion from taxpayers, $ 1.1 billion from schoolworkers, and $ 12 billion in investment gains.

Despite this cash injection, the plan has a deficit of $ 40 billion. Retirees have not seen an improvement in performance in nine years.

In response to a wave of federal subpoenas, PSERS has spent large amounts of money hiring outside lawyers and financial advisors, with fees exceeding and rising $ 2.4 million. The board hired two law firms to represent themselves and the agency to federal attorneys – the FBI and the US Securities and Exchange Commission – and other firms to represent Grossman and seven other fund employees personally.

The SEC, which joined the investigation in September, said the fund is investigating whether employees will accept gifts from vendors who do business with the system.

The agency hired Womble Bond Dickinson, a large law firm with offices in the United States and the United Kingdom, to conduct a parallel investigation into the matters examined by the FBI and SEC.

As the controversy neared its climax, the board was hung up on how much is to be revealed to the public. After the board had been silent about the calculation error for months and rejected requests from The Inquirer for information about the state’s right to know, the board most recently had to deal with complaints from employees that any report would damage their reputation.

The Democratic Governor Tom Wolf, who has three board members, spoke out in favor of disclosure.

“The publication of the results of the investigation would increase transparency and reassure retirees and current members,” said Wolf in a statement on Wednesday.

Since the news of the federal investigation became known, PSERS has said practically nothing about it. Its board of directors has practically all of the behind-the-scenes discussions of the scandal, battling requests for documents from The Inquirer filed under the state’s right to know – and even a board member’s lawsuit claiming she was wrongly of information been excluded.

The subpoenas, copies of which The Inquirer and Spotlight PA had received, required testimony and documents both about the withdrawn calculation and, in what appeared to be an unrelated matter, about the purchase of a number of industrial buildings and parking lots by the Fund for several million dollars Headquarters in the State Capitol.

In June, the fund admitted that Grossman and other members of its investment team were listed in financial documents as payments from both the retirement plan and the company that manages the Harrisburg property. The plan said this was another bug and the forms would be changed.

As for the botched bill, the board passed an inflated number last December, just above the number needed to save teachers from hitting their pension payments. Later it took on a new number that was just below the limit.

While the board did not explain how the bug occurred, it appeared that an outside consulting firm, in internal documents received by The Inquirer and Spotlight PA, was to blame for it. The consultant said an employee made a typo.

However, the poor number was adopted after dissenting board members, particularly then Treasurer of the State Joe Torsella, raised concerns about Grell using unaudited numbers to interrupt investment income numbers to determine returns.

Back then, the CEOs brushed Torsella’s warnings aside.

“We went back and checked the numbers again,” said board chairman Chris Santa Maria, a history teacher and former union leader at Lower Merion schools.

He added, “The information is now reliable and defensible.”

“We did our due diligence,” said Grossman. “We got it covered. I’m not worried. “

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