Association – PSPRS Investment Cover-Up
Arizona Police Association requests criminal investigation of PSPRS investment cover-up
By Randy Diamond | September 27, 2013 4:46 pm | Updated 5:15 pm
The Arizona Police Association asked the state Attorney General’s Office to investigate management of the $7.2 billion Arizona Public Safety Personnel Retirement System, Phoenix, to determine whether pension fund executives covered up investment losses “through deceptive, false and fictitious statements,” a felony in Arizona, according to a letter by Levi Bolton, executive director of the APA.
In the letter to Andrew Pacheco, chief counsel of the attorney general’s criminal division, Mr. Bolton says PSPRS’ relationship with real estate manager Desert Troon is at the “heart of the matter.” The association represents more than 30 Arizona police departments whose staffers are members of the pension fund.
“While it is clear that (Desert Troon’s) investments have significantly underperformed, we recognize that bad investing itself is itself not a criminal act,” Mr. Bolton said in the letter. ”Attempting to cover up these investment losses, however, through deceptive, false and fictitious statements is.”
A spokesman for PSPRS, Doug Cole, said in an e-mailed response that the pension fund had acted properly and would cooperate with any investigation.
Mr. Bolton’s Sept. 13 letter was posted on APA’s website Friday morning.
Three investment staffers and the lead investment counsel at the Arizona pension fund have resigned in recent months. Each of them has alleged that top pension fund administrators were acting improperly by allowing Desert Troon to determine the worth of its joint real estate portfolio.
The portfolio had lost significant value during the financial crisis and Desert Troon was allowed by pension fund administrators to value the property at a potential investment price of how much the property would be worth when the Arizona real estate market recovered at some point in the future. In allowing Desert Troon to set the valuations, PSPRS administrators chose not to use lower market valuations determined by an outside appraiser, Ernst & Young, which had been hired by the pension fund’s board.
Allowing the valuations lessened the retirement system’s overall losses in the fiscal year ended June 30, 2012, and boosted the returns in the year ended June 30, 2013.
A spokeswoman for the state Attorney General’s Office, Stephanie Grisham, said in an interview that her office had referred the matter to the Maricopa County Attorney’s Office because of a conflict of interest: the state office represents PSPRS in legal proceedings.
Jerry Cobb, a spokesman for the Maricopa County Attorney’s Office, said he could not confirm or deny that an investigation was occurring.