State Treasurer Curtis Loftis recommended the state’s $25 billion retirement fund consider two investment management companies that soon thereafter were represented by his friend Charleston businessman Mallory Factor.
Factor, who would make money if either of the firms won business managing part of the state’s pension money, said Tuesday he brought the two firms to the attention of Loftis – who sits on the five-member Retirement Investment Commission that oversees state pension money.
Factor denied any wrongdoing and said he did not pay Loftis to recommend the firms, which the Charleston businessman later told the Investment Commission that he represented.
“Zero. Nada. Nothing. No promises, nothing in the past, nothing in the future, no anything. Ever,” Factor said. “Anybody should be able to talk to the commission and submit the best possible firms for the people of the state of South Carolina.”
The State Law Enforcement Division is investigating what the state Attorney General’s Office has called a “possible pay-to-play scheme” involving the state’s pension system.
That inquiry was started after at least one financial management firm said it was promised it would be considered for a state contract to manage part of the retirement fund, earning lucrative fees, if it paid a fee to Factor. The firm said Factor told it that he was working on behalf of “a newly elected official” on the Investment Commission. The commission has just one elected official, Loftis, the state treasurer.
Reached Tuesday, Loftis declined to comment, saying only he has hired an attorney to defend himself.
In November, the Investment Commission voted unanimously to refer the matter to the state Attorney General’s Office, saying in a letter it was “concerned that certain of the actions ... might violate federal and/or state securities laws.”
The Investment Commission pays 84 investment managers to manage its $25 billion fund.
To select the managers, the commission assigns each commissioner a portion of its retirement fund. That commissioner then works with New England Pension Consultants and commission staff members to vet potential money managers. The commissioner then makes a recommendation to the full commission, which must vote on any contract.
On Nov. 1 and 4, Loftis sent two email messages to a commission staff member recommending three companies “I think are worthy of your time” – including Driehaus Capital Management and 300 North Capital. On Dec. 28, Factor’s company – Caelus Consulting, which markets investment firms and tries to land them new business – sent a packet to the Investment Commission, saying it was working for Driehaus Capital and 300 North Capital.
The State newspaper received both documents through Freedom of Information Act requests. Attempts to reach Driehaus Capital and 300 North Capital Tuesday for comment were unsuccessful.
Loftis also recommended a third company: Kayne Anderson. Factor said Tuesday he contacted Kayne Anderson, but it was not interested in working with him. Attempts to reach officials with Kayne Anderson were unsuccessful.
A spokeswoman for SLED declined to comment on its investigation Tuesday, saying only it is ongoing.
Factor said he did not know the date of his initial contact with the investment firms that he recommended to Loftis, who, in turn, recommended the firms to the Investment Commission. However, he said the work that he did for Loftis was free and he had no agreements with the investment firms until after he registered his marketing firm with the Securities and Exchange Commission on Dec. 2.
Loftis has been critical of the Investment Commission, saying its investments in alternative investments – assets other than stocks, bonds or cash – have cost the state dearly in higher fees and put taxpayers and state retirees at risk. The pay-for-play allegations only emerged, Loftis has said, after he publicly aired those criticisms during a Senate hearing earlier this month.
Some lawmakers have criticized Loftis for, as a member of the commission, voting to approve the alternative investments that he is critical of now. State Sen. Greg Ryberg, R-Aiken, has put forth a proposal to remove Loftis from the Investment Commission. Senators could discuss that proposal today.
It is not unprecedented for Investment Commission members to have ties to management firms or investments before the commission.
Former commissioner Blaine Ewing, a stockbroker, recused himself several times during his tenure on the commission. Last summer, commissioner Reynolds Williams – who has butted heads with Loftis several times – recused himself from voting on a real estate deal because his law partner had represented the company involved.