Bill Thompson Used Pension Funds To Pay Off Cronies, Donors And Connections

City & State looks at Bill Thompson's tenure as comptroller and finds problems - lots and lots of problems:

Thompson’s chief responsibilities as comptroller from 2002 and 2009 were to manage the city’s $85 million pension funds and a staff of about 700 people. He touts that record on the campaign trail, and friends in both political parties credit him for steady leadership as the city’s financial steward in unsteady times.

“He is someone who has always served with distinction and dedication and brought credit to his office,” said Randy Mastro, a former deputy mayor under Rudy Giuliani. “He ran a very professional comptroller’s office as contrasted with his predecessor and successor.”

But some subordinates disagree.

Some staffers who worked in the comptroller’s office during Thompson’s tenure said he was a distant manager who played favorites, hired people with political connections and did not hold anyone responsible when mistakes occurred.

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Sources said Thompson frequently took days off and rarely attended pension board meetings. He was reluctant to challenge Bloomberg, with whom he golfed occasionally, save for a few lower-level skirmishes.

A damning 2005 draft audit of the New York City Teacher’s Retirement System obtained by City & State found widespread mismanagement and lax practices and recommended that teachers consider an entity other than the comptroller to manage the fund.

The report, written by the State Insurance Department, found that the pension fund’s trustees did not discuss or institute guidelines for managing the fund’s investment. The trustees delegated the pension fund’s investments to the comptroller, the audit found. Moreover, the board did not regularly monitor the pension fund’s performance, Thompson’s office did not identify risks or advise trustees about how to invest the fund, and there was little discussion over investment expenses.

A summary of transcripts from board of trustees meetings in the audit indicate that the comptroller’s office did not adequately advise the trustees on whether a proposed investment strategy would meet or deviate from the board’s objectives or fund liabilities. These transcripts also show that that there was no discussion of distinguishing between controlling and accounting for investment expenses, and that no review was conducted on whether expenses were reasonable and necessary. The official audit of the teachers pension fund, released in 2009 by Gov. David Paterson—a Thompson supporter—four years after the draft audit was completed, drew different conclusions from the original draft, with no language suggesting the comptroller should not control the investment powers of the fund. The official report also indicated that investment policy guidelines were overhauled under Thompson. Thompson’s campaign declined to comment on the findings of the state insurance department in both the draft and official audit of the teachers’ pension fund.

The lack of board oversight is significant considering that under Thompson huge increases in spending on financial firms by pension funds were authorized in spending on financial firms by city pension funds at the same time that the funds were losing large amounts of money. Data for the three largest pension funds, the New York City Employee Retirement System, the teacher’s fund and the police fund, shows that investment expenses for these funds rose from roughly $90 million in fiscal year 2002 to about $400 million in fiscal year 2010, the last year the funds were under Thompson’s control.

Despite the evidence, Thompson disputes that the funds lost massive amounts of money, saying that they did relatively well considering how poorly the market was performing at the time.

“One of the things I talked about when I ran [for comptroller], as far as diversifying our portfolio, was making us less dependent on the ups and downs of Wall Street,” Thompson said. “If you look, we went into different asset places in private equity, we went into areas of real estate, we expanded our portfolio and in fact it served us when you look at the fiscal collapse in 2008 and 2009; we lost less money. During up years would we make a little less? Perhaps. But at the same point, then, we also would lose less. I think it was a very balanced approach.”

Records show that in Thompson’s last four years as comptroller, pension investment expenses totaled more than $1.2 billion dollars, compared to only $500 million in his first four years. Despite the significant increase in spending on fees, total assets for the three funds went from $88 billion in 2006 to $82 billion in 2010. 

A New York Times report also found that four out of five city pensions performed below the median for similar public pensions nationally and the city’s largest fund did worse than two-thirds of large public pension funds, even as the number of money managers who worked with the comptroller tripled.

Just how did the investment fund expenses increase so dramatically under Thompson even as the money Thompson was making in the funds was essentially stagnant and the total assets in the funds dropped?

Why the money managers were taking it, of course!

Thompson tripled the number of money managers when he was comptroller even as his funds performed below the median for similar funds nationally and the city's largest fund did worse than 2/3rds of large public pension funds nationally.

Many of these guys showed up at Thompson's 2006 inauguration speech, as detailed by the NY Times:

Nowhere was Mr. Thompson’s embrace of those investment firms more evident than on the guest list to his second swearing-in, in January 2006. The 250 names included a small number of relatives, union leaders and elected officials; more than 50 lobbyists; and another 50 fund managers, placement agents and others who stood to gain from the city’s pension funds

The Times reported that Thompson also invested pension funds with campaign donors, helping his donors make gobs of money in fees, then hit those donors up for more than $500,000 in campaign donations.

With the UFT backing Thompson so heavily even with the knowledge that Thompson's tenure as comptroller and overseer of the Teachers Pension Fund was replete with "widespread mismanagement and lax practices," it makes me wonder just what kind of quid pro quo promises have been shared between Bill Thompson and the UFT leadership.

Was anybody at 52 Broadway involved in the kickbacks and "You invest here, We'll donate there" game Thompson played while comptroller?

Was anybody who is now at AFT headquarters in Washington involved in any of that?

The nexus of corruption that exists between Bill Thompson, the city's financial players, the political establishment and the unions is quite a complex web and it takes some doing to unravel all the strands.

But as Wayne Barrett (here and here), the NY Times and City & State have started to show us in their reporting, it's there if you look for it.