Report: Probe R.I. Pension Funds

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"A sinister pall of secrecy" surrounds Rhode Island's pension system and has enabled hedge fund managers to keep the state in the dark about how its assets are being invested, according to a forensic report that called on federal securities regulators to investigate state General Treasurer Gina Raimondo's management of $7 billion in pension funds.

Benchmark Financial Services of Ocean Ridge, Fla., on Thursday released the 105-page report, titled "Rhode Island Public Pension Reform: Wall Street's License to Steal." Benchmark authored the report for Rhode Island Council 94 of the American Federation of State, County and Municipal Employees.

Council 94 and Benchmark founder Edward Siedle, a frequent critic of Raimondo and a former Securities and Exchange Commission whistleblower, were scheduled to discuss the report during an afternoon news conference at Council 94 headquarters in North Providence, R.I.

"In short, the foxes [money managers] had taken over management of the henhouse [the pension]," the report said. It said serving as state treasurer has presented Raimondo "an opportunity to enrich herself and her hedge-fund backers at the expense of the state's pension fund."

Officially, the fund is called the Employee Retirement System of Rhode Island.

"Most disturbing, from a regulatory and public policy perspective, is that the general treasurer's practice of withholding information and intentionally providing incomplete information disclosures regarding ERSRI's investments results in (1) misleading the public as to fundamental investment matters, such as the true costs and risks related to investing in hedge, private equity and venture capital funds; (2) understating the investment expenses and risks related to ERSRI; and (3) misrepresenting the financial condition of the state of Rhode Island to investors.

"For these reasons, it is recommended that this report, in general, be provided to securities regulators and law enforcement for appropriate action. ...  An investigation by state or federal securities regulators would reveal intentional withholding of material information and misrepresentations regarding state pension costs."

A message was left with Raimondo seeking comment. Raimondo is widely rumored as a Democratic gubernatorial candidate in 2014. Gov. Lincoln Chafee is not seeking re-election.

The report said Raimondo, who co-founded the venture capital firm Point Judith Capital before running for office, is refusing to release documents that would reveal whether she or any other investor had received any "special rights more favorable than those granted to the state, or other limited partners in the fund."

"Transparency and accountability have suffered" while the state pension increased its allocation to hedge, venture capital and private equity funds to nearly $2 billion, or 25%, said the report, which also accused Raimondo of withholding most information about "these high-risk, high-cost investments" from the State Investment Commission. Raimondo chairs the 10-member volunteer commission, which oversees the state pension.

"The treasurer has emerged as the leading national advocate of a disingenuous form of public pension 'reform' which involves slashing workers' benefits and thwarting public access to information regarding the riskiest of pension investments while, in secret, dramatically increasing the risks to retirement plans and the fees they pay to Wall Street," the report added.

Raimondo, 42, took office as treasurer in January 2011. Throughout her first year, she ran point for a landmark, controversial bill overhauling the pension system for state employees. The legislature passed it and Chafee signed it that November.

The far-reaching package created a hybrid plan merging conventional public defined-benefit pension plans with 401(k)-style plans. It also included a suspension of cost-of-living adjustment increases for retirees and raises the retirement age for employees not yet eligible for retirement.

Rhode Island has expected to reduce its unfunded pension liability to $4.3 billion, a 41% reduction, and raise the funding level for its defined benefit plan to 59.8% from 48.4%.

Public-sector unions sued and mediation talks are ongoing under an order from Rhode Island Superior Court Judge Sarah Taft-Carter.

Benchmark accused Raimondo of omitting details about greater costs and risks related to her pension restructuring plans in her May 2011 report, "Truth in Numbers: The Security and Sustainability of Rhode Island's Retirement System."

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