FBI Investigating Arizona Public Safety Pension
FBI investigating pension trust for Arizona safety personnel
Pension trust in federal inquiry
By Craig Harris The Republic | azcentral.com Tue Jan 21, 2014
The U.S. Attorney’s Office has begun a federal grand-jury investigation into the Public Safety Personnel Retirement System, while the FBI is examining allegations that trust managers improperly inflated the values of poor-performing real-estate investments, The Arizona Republic has learned.
The FBI, since at least December, has interviewed former trust employees along with Levi Bolton, executive director of the 13,000-member Arizona Police Association. In addition, at least one federal grand-jury subpoena has been issued for high-level PSPRS documents related to a specific real-estate investment.
The $7.7 billion trust finances the pensions of more than 52,000 people in three state retirement plans: the Public Safety Personnel Retirement System, the Elected Officials Retirement Plan and the Corrections Officer Retirement Plan.
System Administrator Jim Hacking was traveling out of the country and could not be reached, but Christa Severns, a trust spokeswoman, said Tuesday that no one at PSPRS had been officially notified about the investigation.
Deputy Administrator Jared Smout said Tuesday that he knew of no one who had received a target letter from federal officials naming them as subjects of an investigation. Calls and e-mails on Tuesday to all seven PSPRS board members went unanswered.
Neither the FBI nor the U.S. Attorney’s Office would disclose what they are investigating.
Bolton said Tuesday that he was interviewed last month by two FBI agents, one of whom specialized in forensic accounting.
He said he believes the federal investigation began after he requested a criminal probe in mid-September into “the conduct of PSPRS management.”
At that time, Bolton said, he became concerned about the trust’s financial dealings after reports in The Republic and other media outlets raised questions as to whether the retirement system accurately stated the value of its real-estate portfolio managed by Scottsdale-based Desert Troon Cos.
Bolton’s letter, originally sent to the Arizona Attorney General’s Office and then transferred to federal investigators, came after four high-level employees — including the trust’s in-house legal counsel — quit in protest because they believed the assets had been overvalued. Two of those employees recently acknowledged they had been interviewed by the FBI. Another would neither confirm nor deny such an interview took place, while the trust’s former attorney said he had no comment.
A key concern of the former employees was whether the inflated values enhanced certain staff bonuses.
The Republic in August disclosed that the trust gave performance and retention bonuses to its highest-paid staff. It also reported that staff received guaranteed raises the previous five years, at a time when taxpayers were bailing out the financially troubled pension trust.
Five- and six-figure bonuses and additional pay were awarded to managers and investment staff even when the trust posted financial losses in 2008, 2009 and 2012. The trust’s board in September voted to end the bonus program following the newspaper’s story and negative political attention spurred by the payouts.
Desert Troon manages a portfolio of retail, residential and commercial real-estate properties for the trust and was paid at least $12 million in fees in 2012, according to trust records. The company, which reported at least $103 million in losses on trust investments in fiscal 2013, did not return a call seeking comment.
Anton Orlich, a former trust investment manager and one of the four staffers who quit last year, has been ordered to appear before a federal grand jury on Feb. 11 to turn over investment-related electronic documents he took from PSPRS when he quit, court records indicate.
Those same documents are the focus of a civil suit filed against Orlich in Maricopa County Superior Court by PSPRS seeking their return. Court records in that case say the FBI has confirmed to Orlich’s attorney that Orlich is neither the “target or subject of the grand-jury investigation.”
Court records indicate Orlich, who quit in June, took the documents because of his concern that PSPRS management would move or delete them. The records state that he wanted to protect trust beneficiaries, other staff members and himself.
In an interview with The Republic, trust attorney Michael Sillyman alleged that Orlich took more than 3 million pages of documents containing records involving Desert Troon, trade secrets, privileged information and sensitive personal records such as Social Security numbers, phone numbers and addresses of trust members.
Sillyman works for the firm Kutak Rock, which offered legal advice on some of the Desert Troon transactions. Sillyman said the trust intends to file a motion to quash the grand-jury subpoena, claiming Orlich stole the documents that federal investigators now seek.
“If the FBI needs documents from PSPRS, they can subpoena them directly,” Sillyman said Tuesday. “I can’t imagine why they would want member information.”
The trust’s Superior Court suit against Orlich alleges he improperly removed the records.
Orlich’s attorney claims he had permission to take the records.
Superior Court Judge Thomas LeClaire on Jan. 8 ordered Orlich to turn the records over to the court, and Orlich did so on Jan. 13. But that same day, Orlich received the federal subpoena to appear before the grand jury and to bring the same records.
Lynne Adams, Orlich’s attorney, is now asking LeClaire to release a hard drive and three other electronic storage devices so her client can comply with the federal subpoena.
“Mr. Orlich believes that PSPRS filed this suit against him in an attempt to distract attention from its management and potentially remove any documentary evidence of those decisions and conduct,” Adams wrote in her request for the documents to be released.
Adams, in the court filing, said the FBI recently asked to meet with Orlich to discuss his concerns regarding PSPRS management. During that meeting, Orlich met with a special agent and a forensic accountant.
An FBI spokesman would neither confirm nor deny an investigation was ongoing.
A spokesman for the U.S. Attorney’s Office declined to comment, saying it would be inappropriate to discuss an ongoing investigation.
The FBI also met recently with Mark Selfridge, a former PSPRS real-estate manager who quit during the valuation controversy.
Selfridge said the interview dealt primarily with trust investments in Desert Troon.
Selfridge declined to answer additional questions.
Paul Corens, another trust portfolio manager who quit, would not confirm or deny that he talked with the FBI. In his resignation letter to the board last year, Corens said he “resigned due to the unethical practices perpetuated by executive management that I personally experienced over the course of several years and that culminated in early 2013 with the Desert Troon valuation process.”
The Republic obtained Corens’ resignation letter and other documents involving those who quit, through a public-records request filed with the trust.
Andrew Carriker, the former trust attorney who quit, said he could not comment because of attorney-client privilege issues involving his former employer.
Bolton, the head of the Arizona Police Association, said he, too, was interviewed by the FBI. He has not been called to appear before the grand jury. Bolton reiterated Tuesday that only a criminal investigation will reveal what has occurred at the trust.
The controversy over valuations in Desert Troon properties prompted Hacking, the trust’s administrator, to call for an investigation last year by the Arizona Auditor General’s Office. That probe found the trust overstated the values by $24.7 million.
However, the Auditor General’s Office did not interview Orlich as part of its investigation, according to his attorney.