Former county manager settles SEC charges for $10,000
WASHINGTON — A former county manager for Macon-Bibb County, Ga., agreed to pay $10,000 to settle Securities and Exchange Commission charges that he gave an unfair advantage to an investment adviser in a $402 million public pension fund bidding process, a public corruption case in which the SEC used an alternate tactic than its usual disclosure-based approach.
Late last week, former county manager Dale Walker agreed to settle the SEC's administrative proceedings against him after the commission said he gave an investment adviser a boost because of a romantic interest in 2014. The SEC charged Walker under the Investment Advisers Act rather than under the Securities or Exchange Acts, a tool sources noted the SEC has used on occasion in the past.
In 2007, according the SEC complaint, Walker met “Associate A,” who also worked for a state retirement system, and developed a romantic interest. In late 2013, Walker learned that Associate A was working as a consultant with a registered investment adviser headquartered in the U.S. Walker then reached out to Associate A to discuss business opportunities in Macon and Macon-Bibb County, the SEC said.
“During 2013 and continuing into 2015, Walker began regularly contacting Associate A repeatedly and expressing his romantic feelings for Associate A,” the complaint said. “During that time, Walker also sent numerous personal gifts to Associate A.”
Walker hired his love interest's firm to provide cash management services for certain non-pension fund related financial accounts in the city and county. As county manager, Walker was a member of a county pension fund board and in 2014, the pension funds began looking for new investment advisers and directed Walker to create requests for proposals.
Seven investment advisers, including Associate A, submitted responses summarizing the adviser’s experience, investment performance history, cost structure and other information.
Walker signed a required conflict of interest statement before receiving the RFP’s.
“In signing the statement, Walker also agreed that each RFP response must be ‘given fair and equal consideration’ and that any ‘actual, potential, or perceived conflict of interest’ must be reported to the Procurement Office,” the complaint read. “Walker also agreed to maintain the confidentiality of the RFP evaluation process.”
However, Walker sent copies of the seven RFP responses to a colleague of Associate A, known in the complaint as Associate B.
Over two weeks, Associate A and Associate B prepared an analysis of the responses and ranked each of the entities. They ranked their own first among the responses.
“In a competitive bidding process, it is unusual for an investment adviser to be provided with copies of its competitors’ proposals and to be asked to rank and rate its own proposal against its competitors’ proposals,” according to the complaint.
Walker then sent out their analysis to the board of one of the pension funds, making no changes.
Walker was found to have violated the antifraud provision of Section (206)2 of the Investment Advisers Act of 1940, the SEC said. The commission ordered him to pay a $10,000 civil penalty and Walker can’t participate on behalf of a government entity to select or retain investment advisers or broker-dealers. He is also barred under the settlement from having any involvement with managing public pensions or making investment recommendations and from selecting underwriters or municipal advisers for any offering of municipal securities.
The Dale Walker case is similar to the 2009 Henry Morris case, said Paul Maco, a securities lawyer who is of counsel at Bracewell.
“The SEC has from time to time pursued charges against municipal officials and people in the financial services industry under the Investment Advisers Act in addition to the more common disclosure based charges,” Maco said.
That case involved the New York State pension fund and whether investment firms paid friends and relatives of former State Comptroller Alan Hevesi in exchange for business. Morris was one of Hevesi's top advisers, and was eventually found to have violated the Investment Advisors Act as well as securities laws by participating in a scheme to extract kickbacks from firms seeking the pension fund's business.
In recent years, the SEC has focused strongly focus on investment advisers mostly out of concern for elderly abuse, Maco said.
“Rather than a focus on municipal issuers per se, they (SEC) have a constant focus on the municipal market, but they also have a strong focus on investment advisers as well,” Maco said. “Presumably that’s where this came up.”