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SLED has launched an investigation into allegations of a “pay-for-play” scheme involving South Carolina’s $25 billion retirement fund for state workers.
The investigation was started after at least two financial management firms said they were promised they could manage a piece of the retirement fund, earning lucrative fees, if they paid money to a friend of state Treasurer Curtis Loftis.
The firms, which were not identified, said they were contacted by Mallory Factor, a Charleston money manager and Loftis ally, who claimed to represent “an elected official” on the S.C. Retirement Investment Commission.
The only elected official on the commission is Loftis, a first-term Republican, Tea Party favorite and chairman of GOP presidential frontrunner Mitt Romney’s S.C. campaign.
Both Factor and Loftis insisted Wednesday they did not conspire to make money off the Investment Commission. Instead, they said they are victims of a politically motivated attack designed to silence Loftis’ recent calls for more accountability in the retirement fund’s investments.
“The good ol’ boys in Columbia are going to fight the notion of any transparency and accountability,” Loftis said. “Twenty-six billion dollars is a lot of money, and many people want their share of it. I don’t care what they say or what they do, I am going to keep fighting for increased accountability and transparency.”
‘Didn’t feel right on so many levels’
In November, the unidentified financial management firms reported their concerns about a pay-to-play scheme to New England Pension Consultants, the firm that helps the S.C. Retirement Investment Commission hire companies to manage the state’s massive retirement fund.
The firms reported Factor had contacted them and his sales pitch “didn’t feel right on so many levels,” according to some handwritten notes that New England Pension Consultants turned over to the Investment Commission.
The Investment Commission discussed the allegations in a closed-door session during its annual retreat in November. Afterward, the commission, including Loftis, voted to turn the documents over to the state Attorney General’s office.
“The Commission was also concerned that certain of the actions referenced in the attached information might violate federal and/or state securities laws,” Robert Feinstein, an Investment Commission staff member, wrote in a letter to John McIntosh, the state’s chief deputy attorney general.
McIntosh then sent a letter to SLED, asking it to investigate “a possible ‘pay to play’ scheme.”
SLED Chief Mark Keel confirmed to The State on Wednesday that his agency was investigating, adding, “We hope to have this wrapped up fairly soon.”
Factor told The State on Wednesday that, as a former school teacher, he has some money in the state retirement fund. He said he was frustrated because the Investment Commission has chosen firms that have “had horrible results” and felt he could find it much better firms to manage its money.
Factor confirmed he did contact some investment advisory companies, offering to get them contracts to manage parts of the state’s retirement fund. But he said he never referred to Loftis, was not paid by the firms that he contacted and would not be paid unless he was successful in getting the companies a contract.
“Why should the investment commission care if somebody brings them far superior managers to what they are using, as long as it doesn’t cost them any more money?” Factor asked.
‘Implying ... special access’
The commission does care, its vice chairman, Reynolds Williams, said Wednesday.
“It suggests there was somebody out there using the name of one of our commissioners — and there is no indication they had permission to use the name — and that was certainly implying that they had special access to one of the commissioners,” said Williams.
“What we would want to avoid, and what almost all the reputable pension plans want to avoid, is there being a third-party marketer out there that has some secret arrangement with some undisclosed people,” Williams said. “That could lead to trouble.”
Williams told the Associated Press that one of the investment firms that had been approached called him and asked: “What’s going on with the investment commission? I received a phone call that made it sound like in order for us to be considered to work for them, we had to pay an elected official. Is that the way they do business down there?”
Factor told The State that he sent the commission a letter, telling it the names of the advisory companies that he contacted and the reason he contacted them.
However, Williams disputed that, saying: “We never received any such letter. Never. Certainly not that I know of, and I think I would know.”
Factor said he has been contacted by SLED agents concerning their investigation. But those agents characterized Factor’s role in the investigation as only “a witness,” he said.
SLED Chief Keel declined to elaborate on the status of the investigation.
It is not illegal for investment funds to use so-called “third-party marketers,” as long as those marketers are registered with the Securities and Exchange Commission. That is one of the things that caused the two unidentified financial management firms to think something “didn’t sound right,” in their words. They could not find Factor or his company registered with the SEC.
Factor said his registration is pending.
John Monk contributed to this article. Reach Beam at (803) 386-7038.
A letter from the investment commission to the Attorney General's office laying out the allegations.
Attorney General Letter
A letter from the state Attorney General's office to SLED, asking them to investigate.
Notes from a telephone conversation between an unnamed financial management firm and an employee for the New England Pension Consultants, a firm that works for the Investment Commission. This is one of the conversations that lead to the investigation.
Notes from a telephone conversation between an unnamed financial management firm and an employee of New England Pension Consultants, a firm that works for the Investment Commission. This is one of the conversations that lead to the investigation.