The Fayetteville Observer today publishes an article of mine focusing in on the high amount of out-of-state donors of State Treasurer Janet Cowell, and a practice that certainly gives the appearance of pay-to-play arrangements.
Janet Cowell’s primary responsibility as State Treasurer is to oversee the pension fund for retired North Carolina teachers and state employees. So why does her campaign receive so many contributions from faraway states like New York, Pennsylvania and California?
Didn’t Cowell learn anything from her predecessor, Richard Moore, who got in hot water due to the appearance of “pay to play” because he took campaign donations from out-of-state money managers?
Recent developments suggest Cowell has merely replaced one potential form of pay to play with another.
In the article, I detail how the state’s pension fund is pursuing lead plaintiff status in a major class action lawsuit against Facebook’s actions leading up to their IPO. The New York based law firms – who stand to profit handsomely from the suit – chosen by Cowell to represent the fund also happen to be major donors of Cowell’s. Indeed, research shows that Cowell has received more campaign contributions from out of state sources than from North Carolina backers in the 2012 election cycle.
And this cozy relationship between law firms specializing in securities class actions and state officials controlling state pension funds isn’t exclusive to North Carolina. As I detail in the article:
As far back as 2004, Forbes magazine began exposing this development, dubbing it the “class action industrial complex.” Becoming the lead counsel representing huge public pension funds can reap significant paydays for law firms, and these firms have become especially generous contributors to elected pension fund managers across the country.
Examples of pay-to-play in the public pension class-action “industrial complex” are numerous, and Cowell’s choices to represent North Carolina’s pension fund are front and center in many of them.
For instance, Bernstein has been particularly active in Louisiana. The firm had contributed more than $90,000 to Louisiana politicians and, in turn, represented various state public pension funds in at least 15 class actions at the time of the Forbes article. Moreover, in one notorious case, Bernstein (while partnering with another firm) attempted to bill major public pension funds from New York and California more than $10,000 an hour for its services in another class action. H. Carl McCall, who at the time was state comptroller and the sole trustee of the New York State fund, just so happened to be the recipient of $140,000 in campaign contributions from the two class-action firms representing his fund.
Such cases involving the appearance of pay-to-play between securities firms and public pension fund managers have become so prevalent, in fact, that in 2009 the U.S. Senate Banking Committee asked the SEC to investigate. Unfortunately, the SEC didn’t take up the challenge.
The solution to such pay to play arrangements? Take the politics out of state pension funds and convert state employee retirement plans to 401(k) style defined contribution plans that are owned and managed by the individual employees, and thus not subject to oversight by elected officials who may succumb to pay to play schemes.
A somewhat lengthier, more detailed version of this article is now posted at the Civitas Institute’s main website. Read it here.