An investigation of the Chicago Policemen Annuity and Benefit Fund was funded by members of the Chicago Police Department Pension Board Accountability Group. According to the report, the CPABF is one of the worst funded public pension plans in the U.S. today with a funding ratio at year-end of only 23%. According to the report, “The toxic mix of defunding the police pension, conflicted and high-risk investments, and poor management of the pension cry out for greater transparency and accountability.”
As Arthur Levitt, Chairman of the SEC stated back in 1999 in connection with the Commission’s review of pay-to-play practices at public pensions, “Today, public funds hold more than $2 trillion of assets. These assets do not belong to the elected officials, and they do not belong to the trustees. They belong to the tens of thousands of firefighters, ambulance drivers, city clerks, bus drivers and other public employees who make our communities work. “Their interests,” as my father said twenty years ago, “must be paramount in investment of that money.”
The tremendous importance of public funds demands that they be managed with complete honesty and integrity and for the sole benefit of their beneficiaries.”
Author(s): Edward Siedle
Publication Date: 7 October 2021
Publication Site: Forbes
A $66 billion Pennsylvania state pension fund under scrutiny for errors in calculating investment returns has been asked by securities regulators to turn over records related to possible gifts exchanges with dozens of Wall Street firms, according to a subpoena reviewed by Bloomberg.
The U.S. Securities and Exchange Commission issued the subpoena Sept. 24 to the Pennsylvania Public School Employees’ Retirement System, demanding information about the fund’s dealings with firms including Blackstone Inc., The Carlyle Group Inc., Morgan Stanley, Apollo Global Management Inc. and consultant Hamilton Lane Advisors.
SEC Enforcement Division Senior Counsel Heidi Mitza asked that the pension fund supply “all Documents and Communications Concerning any compensation, remuneration, money, gifts, gratuities, trips or anything of any value” exchanged between representatives of investment managers, advisers, and consultants and any representatives of PSERS or the state, according to the subpoena.
Author(s): Neil Weinberg
Publication Date: 29 Sept 2021
Publication Site: Bloomberg
The January report by former SEC Chairman Harvey Pitt lays bare deep divisions within the Public Company Accounting Oversight Board, which oversees the audits of companies valued in total at trillions of dollars.
It also alleges organizational dysfunction. There were no records documenting the rationale for several staff firings, and confusion about the roles of the PCAOB’s board members has “created some dysfunctional behavior” by them, the report found.
Current SEC Chairman Gary Gensler this month ousted William Duhnke as PCAOB chairman and is replacing the rest of the five-member board.
A PCAOB spokeswoman didn’t return a request for comment. An SEC spokesman declined to comment. Mr. Duhnke said he hasn’t seen the report and cannot comment on it.
Author(s): Jean Eaglesham, Dave Michaels
Publication Date: 28 June 2021
Publication Site: WSJ
Unlike FASB, the SEC has no control over GASB. But the Commission is obligated “to protect investors in the municipal markets from fraud, including misleading disclosures [emphasis added].” Taken together, the SEC’s own statements make a strong case that it is obligated to prevent fraud in state and local governments’ financial reports, which are confusing and obfuscate the truth.
The state and local governments’ annual financial reports are based on shoddy accounting practices. If confusing and misleading disclosures are considered fraud, then annual reports produce fraudulent disclosures.
It is confusing and misleading that the GASB requires state and local governments to keep two sets of books. Annual financial reports include governmental fund statements that are prepared using an accounting basis called the “modified accrual basis,” which in essence uses short-sighted cash accounting, while the consolidated financial statements are prepared using accrual accounting standards similar to those used by corporations.
Author(s): Sheila Weinberg
Publication Date: 20 May 2021
Publication Site: Truth in Accounting
In testimony prepared for the House Financial Services Committee, Securities and Exchange Commission Chairman Gary Gensler says brokerages that “gamify” trading — by using appealing visual graphics to reward a user’s decision to trade, for instance — may encourage frequent trading that results in worse outcomes for investors. Some Democratic lawmakers have blamed gamification for the boom in individual trading that helped drive the rise in GameStop shares.
Mr. Gensler, who will appear before lawmakers on Thursday, also said the SEC would study regulatory changes in response to the March blowup of Archegos Capital Management, an unregulated family-investment vehicle of hedge-fund veteran Bill Hwang whose leverage-fueled bets led to more than $10 billion in losses at major global banks.
Author(s): Dave Michaels, Alexander Osipovich
Publication Date: 5 May 2021
Publication Site: Wall Street Journal
The Securities and Exchange Commission is considering a tightening of disclosure requirements for investment firms following the collapse of Archegos Capital Management and the GameStop trading frenzy, people familiar with the matter tell Bloomberg.
Officials at the SEC, now being led by Gary Gensler, who was confirmed as chairman of the regulator last week, want to increase transparency of the derivative trading that led to the implosion of Archegos, Bill Hwang’s family office, the people say.
Lawmakers have also heaped pressure on the agency as they seek more transparency about who is shorting stocks following the GameStop debacle.
Author(s): Kathleen Laverty
Publication Date: 22 April 2021
Publication Site: fundFire
Already, over the past few weeks, Biden’s Security and Exchange Commission (SEC) announced that it will update its guidelines on how climate risks should be disclosed to investors, and launched a task force to focus on climate-related compliance and misconduct. The SEC has also refused to help ExxonMobil block a shareholder vote on a climate-change resolution. (Although the commission did just let the company reject a shareholder proposal to force the operation to disclose what it plans to do with its untapped fossil fuel assets.)
This week, the Securities and Exchange Commission sided with ExxonMobil in rejecting a shareholder proposal to require the company to report how it plans to deal with “stranded assets” — untapped fossil fuels that the company is counting as assets but may never be drilled, meaning they will turn into liabilities.
Author(s): Dharna Noor, Walker Bragman
Publication Date: 15 March 2021
Publication Site: Gizmodo
Meanwhile, investor efforts to require political spending disclosures at individual companies were halted on many occasions by large asset managers like BlackRock and Vanguard, which have regularly used their immense shareholder voting power to shield companies from transparency.
Now with a new SEC chairman, transparency advocates see an opportunity for progress.
“People want to know who companies are bankrolling,” said U.S. Rep. Andy Levin (D-Mich.). H.R. 1, the democracy reform package passed by House Democrats earlier this month, includes a bill from Levin to repeal the Republican measure blocking the SEC from requiring companies to disclose their political spending.
Author(s): Julia Rock
Publication Date: 10 March 2021
Publication Site: Daily Poster
At Tuesday’s confirmation hearing, Sen. Pat Toomey pressed Gary Gensler on the scope of the SEC’s authority to regulate politics. Let’s say “a publicly-traded company spends a financially insignificant amount of money on, let’s say, electricity,” Mr. Toomey proposed. “Is it material whether that electricity came from renewable sources or not?”
Mr. Gensler resisted answering, saying “it may not be material or it may be material.” This isn’t reassuring. The concept of materiality is crucial to securities regulation because it defines the transparency required for investors to make prudent decisions. The SEC is supposed to protect investors from fraud by making sure they have access to accurate information about a firm’s performance.
But progressives want to use the agency’s watchdog responsibilities as a guise to bend finance in service of unrelated political goals, like climate. Mr. Gensler seemed to reserve the right to impose such politicized disclosure requirements, even when the information is “financially insignificant.”
Author(s): Editorial board
Publication Date: 3 March 2021
Publication Site: Wall Street Journal
In a rebuke to the SEC lawsuit, Morningstar issued a press release on Feb. 17, saying that MCR “complied with the regulatory requirements in question” while the SEC’s position is “inconsistent with its own rules and … policies” and that the agency has “overstepped its regulatory limitations by imposing requirements that would regulate the substance of credit rating methodologies.”
In an accompanying position paper, Morningstar said that by questioning MCR’s use of qualitative factors in its legacy CMBS ratings model, the SEC is “attempting to dictate the substance of MCR’s rating methodology,” which it is prohibited to do by law. “If the SEC believes additional rules are required — consistent with the analytical independence of a credit rating agency — the agency should go through the rule-making process, not file an action against MCR.”
Author(s): Bernice Napach
Publication Date: 17 February 2021
Publication Site: Think Advisor
For fiduciaries overseeing other people’s money, private equity’s disparate treatment of investors, abusive industry practices and alarming lack of transparency should be deal-breakers. To the contrary, pensions in recent years have dramatically increased their allocations to private equity funds—either because they don’t understand the dangers lurking in the shadows or simply don’t care as long as above-market returns are promised (which will supposedly reduce severe pension underfunding).
Securities and pension regulators have paid little attention to the “side letter” agreements private equity funds enter into with investors granting preferential treatment. It’s no secret that these agreements exist—the practice of entering into them is disclosed in offering memoranda and is openly discussed throughout the industry. As a result of increasing institutional investor domination of private equity, and the regulation applicable to these investors, it is now standard practice in the industry for each investor to demand its own side letter. As a consequence, there has been a proliferation of the number of side letters being negotiated with investors, as well as the kinds of arrangements and provisions included in them.
Author(s): Edward Siedle
Publication Date: 28 February 2021
Publication Site: Forbes
The number of pension funds, endowments, and foundations adding Bitcoin to their portfolios has steadily risen over the past couple of years as the digital asset has gained more acceptance as an alternative asset.
Two pension funds in Fairfax, Virginia, began investing in late 2018 and 2019 in blockchain technology and Bitcoin through investments in two Morgan Creek Digital funds, which many consider the first investments in the crypto asset from a US pension fund. And a number of hedge funds, family offices, pension funds, endowments, foundations, asset managers, registered investment advisers (RIAs), and banks own Bitcoin outright through Boston-based Fidelity Digital Assets.
The world’s largest asset manager, BlackRock, recently said it is entering into the cryptocurrency business, according to US Securities and Exchange Commission (SEC) filings. BlackRock, which manages $8.7 trillion, said in its SEC filings that it is seeking to add the Bitcoin futures investments to the BlackRock Global Allocation Fund and the BlackRock Strategic Income Opportunities Fund.
Author(s): Ellen Chang
Publication Date: 11 February 2021
Publication Site: ai-CIO