Assistant State Attorney General Says PSPRS Subpoena Is A Public Document
Fed grand jury seeks pension documents
Retirement system board hires criminal attorney to handle subpoena
By Craig Harris – The Arizona Republic/ azcentral.com – March 8, 2014
The pension system for Arizona police and firefighters has received a federal grand-jury subpoena to turn over “a long list” of documents as part of a criminal investigation into whether pension-trust managers inflated certain real-estate investment values to trigger staff bonuses.
The trust board of the Public Safety Personnel Retirement System voted at a special meeting Friday to hire a criminal defense attorney to handle matters related to the grand-jury investigation.
PSPRS officials refused to release a copy of the subpoena to The Arizona Republic despite an assistant state attorney general’s opinion that it is a public document that should be readily released.
A system spokeswoman said Jared Smout, the system’s deputy administrator, made the decision late Friday to withhold the record after the trust previously removed the subpoena from its Phoenix headquarters and gave its only copy to Michael Sillyman, a private attorney from the firm Kutak Rock in Scottsdale.
Sillyman also refused requests from The Republic and the newspaper’s attorney to release the document.
Another Kutak Rock lawyer publicly supported the trust’s decision to report higher real-estate values on its books. Those values are now under federal scrutiny.
Efforts by the U.S. Attorney’s Office to obtain sensitive information comes after the system’s in-house counsel and three high-level investment analysts quit in protest last year because of concerns over the way real-estate values were being recorded. The U.S. Attorney’s Office declined to comment on its probe.
The pension system last week disclosed that it was restating its real-estate portfolio for the end of 2013, reducing the value of the portfolio by nearly $40million, because of accounting errors — including the double counting of some property values — and upon the recommendation of the state Auditor General’s Office.
Marty Anderson, deputy chief investment officer, blamed some of the accounting problems on a former employee but did not elaborate. The system repeatedly declined to disclose the identity of that person.
All three analysts who quit last year told The Arizona Republic this week that they had nothing to do with the accounting problem. One, Mark Selfridge, said he warned the system not to double-count land values before he resigned in mid-July.
The system manages a $7.7billion trust to pay for the retirement benefits of public-safety officers, elected officials and correctional officers. It has more than 53,000 members.
Board Chairman Brian Tobin acknowledged Friday that the system had received the subpoena, but he referred all questions about the probe to Ivy Voss, an assistant state attorney general who represents the trust.
Voss told The Republic that the U.S. Attorney’s Office had requested an extensive number of records by next month.
Voss, who was at Friday’s board meeting, indicated the subpoena is a public record and should be readily available.
The Republic later asked for the document, but trust administrator Jim Hacking said through a spokesman that the system could not immediately release a copy because it no longer was in the hands of any administrators or board members at the trust’s Phoenix headquarters.
Voss said that, to her knowledge, no employees at PSPRS had received “target” or “subject” letters from federal prosecutors. Such letters usually are sent to individuals targeted by or the subject of criminal investigations.
The federal investigation rests largely on claims made by Anton Orlich, a former investment analyst who took numerous records from the pension system and is now a key witness for the FBI.
When Orlich quit in June, he downloaded thousands of investment documents from the trust’s computer system out of concern that PSPRS management would move or delete them, according to court records.
The system has denied wrongdoing. Last year, it sued Orlich, alleging that he illegally stole proprietary and personal information such as Social Security numbers of pension trust members. Orlich has said he had permission to take the records and has said he was unaware the documents included personal information — and that he never looked at it.
As part of the civil suit in Maricopa County Superior Court, the system obtained a judge’s order to force Orlich to return the documents. Orlich turned them over to the court Jan. 13. But, on that same day, Orlich received a federal subpoena to appear before the grand jury with the records.
With Orlich no longer in possession of the documents, the U.S. Attorney’s Office has used the grand jury to subpoena records from the trust. Voss said the office is seeking all the documents that Orlich took.
The Republic also has battled the agency to disclose records about the matter under the Arizona Public Records Law. The newspaper asked months ago for reports detailing internal disagreements over the valuation of real-estate investments.
The trust board voted last week to turn the reports over to The Republic, but Kutak Rock advised the board not to part with many key exhibits backing up critics’ contentions that the real-estate assets were overvalued to protect top-staff bonuses.
Attorney David Bodney, who represents The Republic, appeared before the trust board Friday to again urge the release of the documents in question. That request was rebuffed by the board.
Orlich, in a deposition obtained by The Republic, said the FBI has interviewed him at least four times about the subject. He has provided information to special agents about potential fraud at the pension system involving its joint-venture real-estate projects and a possible cover-up.
The deposition was conducted by Sillyman, who also asked Orlich questions about the FBI investigation. Orlich told Sillyman he was made uncomfortable by Sillyman using a deposition in a civil suit to “find out questions about a criminal investigation into Kutak Rock and PSPRS.”
An FBI spokesman said Friday that the agency would neither confirm nor deny it had interviewed Orlich and that it would not divulge information about any investigation. Sillyman did not respond to a request for comment.
The Republic has learned that the FBI since at least December has been interviewing Orlich and other former trust employees along with Levi Bolton, executive director of the 13,000-member Arizona Police Association. Bolton triggered the investigation in mid-September by requesting a criminal probe 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.
The Republic in August disclosed that the trust gave performance and retention bonuses to its highest-paid staff and that five- and six-figure payments were given to investment staff even when the trust posted financial losses in 2008, 2009 and 2012. System officials said the bonuses provided in 2012 were unrelated to realty values.
The board voted to end the bonus program in September after the newspaper’s story and negative political attention spurred by the payouts.