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Shenanigans At The PSPRS Pension Part Deux

On this very day, one year ago…

The  #$%! Up In The Desert was made public.

                                            – Pensioners First

Dust-up in the desert

Arizona public safety fund is still grappling with a controversy over some real estate investments

Staff and board members of the underfunded $7.9 billion Arizona Public Safety Personnel Retirement System, Phoenix, continue to deal with fallout from questions about real estate valuations and legal matters involving former staff members who questioned those valuations.

Three portfolio managers, as well as the pension fund’s chief investment counsel, resigned between June and October 2013 over valuation of some of the properties in portfolios managed by Desert Troon Cos., Scottsdale, Ariz.

The FBI has interviewed at least two of the former portfolio managers, asking whether senior management had inflated the value of real estate managed in a joint venture between the pension fund and Desert Troon.

Mark Selfridge, a former portfolio manager, said in an interview with Pensions & Investments that FBI agents questioned him about the valuation issues. Anton Orlich, another former portfolio manager, testified in a deposition taken by the pension fund that he, too, was questioned by the FBI.

James Hacking, the pension fund’s administrator, said in a letter to P&I that the valuations used by PSPRS senior management — Chief Investment Officer Ryan Parham, Deputy CIO Marty Anderson and Mr. Hacking — for the Desert Troon portfolios “were reasonable” and “most accurately reflected” the underlying value of the real estate properties.

One month after this article was published, Administrator James Hacking was fired for lying to the Governor about suspended bonuses and hidden pay raises that were a direct result of these employee resignations.

                                                                                                               – Pensioners First

A federal grand jury has subpoenaed PSPRS for documents in connection with the FBI investigation.

The pension fund is suing Mr. Orlich, alleging he improperly took fund documents with him when he resigned. Mr. Orlich insists he had permission to take the documents. In addition, Desert Troon filed suit against the four people who resigned from PSPRS, alleging they made false statements to the media, including P&I, defaming the firm and senior officials at the pension fund.

One thing is certain: PSPRS won’t be entering into any other relationships structured like the joint venture with Desert Troon. Pension trustees voted earlier this year to prohibit PSPRS from investing in any new “joint venture real estate investments.”

Despite repeated written requests and phone calls, Desert Troon CEO Daniel Smith did not comment for this article.

The relationship

PSPRS and Desert Troon formed at least two real estate ventures that remain active today, part of a real estate investment program that Mr. Hacking said in an April 22 letter ”reflected PSPRS’ commitment to investment in the Arizona community.”

The first is DTR1 LLC, which Mr. Hacking said was formed in the mid-1990s. This is the joint venture that Messrs. Selfridge and Orlich said the FBI asked them about.

PSPRS owns between 85% and 100% of each property in the DTR1 portfolio; Desert Troon owns the remainder and manages all of it. The joint venture also contains what Mr. Hacking called “the majority of the … assets” that another real estate money manager, The Pivotal Group, had managed for the pension fund; Pivotal was terminated in 2009.

The second company, DTR1C LLC, was formed in 2009 as a wholly owned subsidiary of PSPRS, the assets of which are managed by Desert Troon. It was formed to assemble, reposition and sell distressed properties; the pension fund is the sole investor. The portfolio includes properties that had been managed by Apex Capital Management which, like Pivotal, had been hurtby the collapse of the real estate market and had poor performance.

The pension fund terminated Apex in 2011 and transferred about $30 million in properties managed by Apex to DTR1C in early 2012. The properties in DTR1C are 100% owned by the pension fund. DTR1C also contains some properties in which Desert Troon gave up its minority interest after the pension fund paid down debt on them, minutes from PSPRS board meetings show.

The assets managed by Desert Troon in both portfolios represented 55.08% of PSPRS’ overall real estate portfolio at the end of fiscal 2008. That dropped to 36.6% at the end of last year.

Overall, PSPRS has made capital commitments and/or investments of more than $550 million with Desert Troon during the 18-year relationship.

Desert Troon manages almost 4.7% of the pension fund’s total assets, according to PSPRS’ June 30, 2013, financial statement.

A report from Bank of New York Mellon (BK) Corp. (BK), the pension fund’s custodian, showed PSPRS’ investments with Desert Troon returned an annualized -6% net of fees on a time-weighted basis for the five-year period ended June 30, 2013. The NCREIF Property index returned an annualized 2.79% for the same period.

Mr. Hacking confirmed the pension fund uses the NCREIF index as a benchmark. But he said for accounting reasons, comparing the returns of DTR1 and DTR1C to that index “will result in material distortions and inaccuracies. Simply put, it is not an ‘apples-to-apples’ comparison.”

Most recent publicized public reports for Desert Troon’s investment performance

• -16.4% One-year performance
• -3.1% Three-year performance
• -4.7% Five –year performance

There appears to be an over-weighting of the real estate portfolio in Desert Troon while the portfolio itself has been consistently underperforming over the past five years.  Regardless, it does appear that the relationship will need to change so that PSPRS can diversify its real estate portfolio and not have its returns so closely tied to a single company. (PSPRS Pension Watch blog)


The value of the two portfolios Desert Troon managed led to a dispute in 2013 over whether Messrs. Parham and Hacking had used the appropriate appraisal methods during the previous four years.

The three former PSPRS portfolio managers — Messrs. Selfridge, Orlich and Paul Corens — and former Chief Investment Counsel Andrew Carriker cited the valuation dispute as a reason for their resignations.

Mr. Hacking acknowledged to P&I that the four men had disputed the valuation and “resigned, ostensibly over this issue.”

The controversy came to light last year after Messrs. Orlich and Carriker began questioning how PSPRS was valuing the Desert Troon portfolios.

The roots of the valuation dispute go back to 2009. That’s when the pension fund began using a market value for all appraisals. The purpose was to provide “meaningful insight into the value of (the pension fund’s) investments” and “specific asset values” in the preparation of PSPRS’ financial statements, Mr. Hacking said in a letter to P&I. (Until then, a cost basis — what it cost to acquire a property — was used.)

But in 2010, Messrs. Hacking and Parham discarded the market-value-based appraisal process. They agreed to Desert Troon’s request that the pension fund use an investment-value-based approach.

The Governmental Accounting Standards Board requires public pension funds’ real estate holdings to be appraised at market value, using factors such as comparable sales or an income approach using discounted cash flow analysis, said William Holder, a former GASB board member and dean of the Leventhal School of Accounting at the University of Southern California, Los Angeles. He is not involved in the PSPRS matter.

For the fiscal year ended June 30, 2012, Desert Troon valued the real estate it managed for the Arizona pension fund using investment value, “to reflect what it fully expected those assets would sell for in the future as the real estate markets revive, especially here in Arizona,” Mr. Hacking said in a July 2013 letter to Arizona Auditor General Debra K. Davenport, requesting that her office evaluate Desert Troon’s valuation methods.

He said Desert Troon used the income approach to analyze future cash flows from the properties, the same method used by independent appraiser Ernst & Young LLC.

But they used different discount rates.

While the auditor general said Desert Troon used a 5% discount rate for lifestyle and retail properties, which were the bulk of the portfolios, discount rates of 7.75% to 20.5% were used for commercial properties.

Ernst & Young, however, appraised every property using discount rates of 7.75% to 20.5%.

The auditor general said the 5% discount rate Desert Troon used for lifestyle and retail properties “may not be consistent with accounting standards.” But the auditor general also said the discount rates used for the commercial properties were ones “market participants would use,” and were appropriate.

As a result, Desert Troon’s appraisals for the year ended June 30, 2012, totaled $303.5 million; Ernst & Young’s appraisals totaled $213.6 million.

Desert Troon’s valuation was used in the pension fund’s financial statements for the year ended June 30, 2012, which led to a dispute the following year among PSPRS investment staff as to what discount rate to use. That disagreement ultimately led to the resignation of the three portfolio managers and the chief counsel.

Mr. Holder said the 5% discount rate was too low to reflect the market value of real estate, as required by the GASB. He said investors in real estate generally use at least 12% to 15% to reflect the speculative nature of real estate investments. He said 5% would be closer to a risk-free rate.

For the fiscal year ended June 30, 2013, Ernst & Young’s valuation was about $82 million less than the approximately $344 million Desert Troon had reported.

Mr. Hacking told P&I that using a market-based valuation would have understated the value of the Desert Troon portfolio by as much as $151 million combined in the two fiscal years ended June 30, 2013.

Valuation issues also surfaced in earlier years. In 2007, the joint venture with Desert Troon purchased Superstition Gateway, a shopping complex in Mesa, Ariz., and tracts of vacant land in other parts of metropolitan Phoenix.

In 2010, the pension fund hired CBRE Group Inc. to appraise the shopping center and land, using PSPRS’ new market-value appraisal policy, Christa Severns, the pension fund’s former external spokeswoman, has said.

Based on the appraisal by CBRE, the pension fund’s entire equity investment of $64.4 million in Superstition Gateway would have to be written down, according to a June 18, 2010, e-mail to Mr. Corens from Desert Troon CFO Daniel Hammons,who questioned the appraisals.

“These values seem criminal,” Mr. Hammons wrote.

That e-mail also said that based on the CBRE appraisal, the pension fund’s entire $31.7 million investment in Terra Verde, a partially completed office park in Scottsdale, would be wiped out.

In an e-mail to P&I, Ms. Severns said pension fund and Desert Troon executives were concerned that the market-based appraisals might have “produced ‘fire sale’ values that would have wiped out the (pension) system’s and DTC’s equity interests in some of those properties.”

“The resulting values could have arguably violated the loan covenants and potentially caused lenders to issue technical loan defaults or at the very least demand principal reductions,” she wrote.

Ms. Severns said after seeing market-based appraisals that showed a severe decline in property values, Desert Troon executives requested the pension fund use the investment-value approach for its joint-venture portfolio.

She said PSPRS’ CIO Mr. Parham then arranged a meeting in the summer of 2010 between Desert Troon and CBRE group officials and both agreed an investment-based methodology should be used to value the properties. And it was.

Mr. Hacking said in his July 2013 letter to the state auditor general that Desert Troon officials had argued in 2010 that it would be unreasonable to report then-current market values for the joint venture, DTR1, since those properties were not going to be sold immediately and could be sold at substantially higher prices in the future.

The properties were ultimately reappraised higher, using investment value, as requested by Desert Troon. The properties — including Superstition Gateway and Terra Verde — were written down by approximately $50 million in 2011.

A 2010 appraisal that valued the properties at about $100 million less using market value was never used. Indeed, for the five fiscal years between July 1, 2009, and June 30, 2013, PSPRS used investment value in appraisals.

In a formal report to the pension fund’s board, Mr. Carriker, the chief investment counsel, contested those valuations. But the board adopted a report signed by Mr. Hacking and PSPRS’ outside fiduciary counsel Marc Lieberman that said the use of investment value calculations was proper.

Last November, the auditor general responded to Mr. Hacking’s July 2013 letter regarding the asset valuation methods, saying the pension fund must adhere to GASB rules of using fair, or market, value.

However, in another section of its report, the auditor general said for the properties in the joint venture, investment value can be used. It said PSPRS, as an investor in the entity that owns the real estate, doesn’t value its investments based on the appraisals but rather on values provided by Desert Troon under the joint venture’s operating agreement.

Because of that scenario, the auditor general quotes generally accepted accounting principles as allowing Desert Troon to estimate the value of PSPRS’ ownership interest. The pension fund used that number.

Mr. Holder, the USC dean, disagreed that PSPRS could report investment value for the Desert Troon joint venture portfolio. He said regardless of whether joint venture real estate assets can be sold at the time they are appraised, the GASB requires public pension funds to list real estate at fair, or market, value.


PSPRS mainly made direct real estate investments with several firms between 1990 and 2008 as the pension fund expanded its investments in Arizona strip shopping centers, office buildings, residential development and vacant land.

Most of the direct real estate investments were in the Phoenix area.

Concentrating investment in one area can be risky because a pension plan could expose itself to the vagaries of that market, said Robert Heinkel, a professor at the Sauder School of Business at the University of British Columbia, Vancouver, and co-author of the book, “The Role of Real Estate in a Pension Portfolio.”

While Mr. Heinkel isn’t familiar with the Arizona pension fund, he commented: “It’s real obvious that you want to diversify not just in real estate investments, but any investments. It’s dangerous not to do so.”

When Mr. Parham became CIO on May 27, 2009, the Arizona and Southwest real estate markets had collapsed, which meant such investments the pension plan made had already soured. Pension officials began publicly acknowledging problems in the real estate portfolio that year, board and investment committee meeting minutes show.

Problems with some properties emerged when the pension fund was called on to help Desert Troon repay debt from property investments for both portfolios.

Minutes of a January 2010 PSPRS investment committee meeting show Desert Troon was facing demands from bank lenders requiring immediate repayment of debt on properties, first in the joint venture (DTR1) and later in both portfolios.

When asked how much pension fund money was used to pay down debt on properties managed by Desert Troon, Mr. Hacking said in an e-mail: “We cannot say without research … but we have confirmed that since 2009, (PSPRS) has contributed $93 million to DTR1 and $76 million to DTR1C.“

In some cases, PSPRS was forced to repay the debt because it had guaranteed it would make payments if the joint venture — DTR1 — could not.

The pension fund’s pledge enabled the PSPRS Desert Troon joint venture to get a lower interest rate on loans, according to minutes from a PSPRS board meeting on Nov. 30, 2011.

“The decision to enter into recourse (debt) was made when debt was cheap for joint ventures and the market was doing well, in order to save money,” Don Stracke, a consultant from the pension fund’s general consultant NEPC LLC, was quoted in the minutes as saying. “The situation that has occurred was not foreseen and today we would never agree to recourse debt.”

Mr. Hacking said in a posting on the fund’s website in August 2013 that Desert Troon had done an excellent job managing depressed real estate assets back to health. He cited more than $37 million in real estate sales at that time, two to three times their value in December 2007, he said. He didn’t say how many properties were sold.

Mr. Hacking has said the pension fund intends to sell the properties managed by Desert Troon when the market recovers. For now, most of the properties in the two Desert Troon-managed portfolios remain unsold.

Desert Troon earns fees from PSPRS as its real estate manager, operating partner, developer and property manager as well as when properties are sold. The pension fund paid Desert Troon $12 million in fees in 2012, according to a report compiled by ORG Portfolio Management, the pension fund’s real estate investment consultant. The report concluded the fees were appropriate.

Performance monitoring

The valuation dispute is just one issue raised by the former employees. They also questioned the lack of quarterly reporting by Desert Troon about investment performance of the portfolios the company manages for the pension fund.

As the Arizona fund’s allocations to Desert Troon increased, PSPRS’ oversight of the manager did not keep up with Desert Troon’s expanding role, said Mr. Corens, who was real estate manager from 2006 to 2010.

Messrs. Corens and Selfridge said in separate interviews that Desert Troon failed to provide quarterly financial reports, which real estate investment consultants say are an industry standard.

The two former PSPRS employees said that while Desert Troon did provide annual performance reporting, that reporting generally was limited to only aggregate data on the overall Desert Troon portfolio. That, they said, made it difficult for the PSPRS staff to determine what pieces of the portfolio were performing well and which were underperforming.

Mr. Hacking in his e-mailed answers to questions, said Desert Troon “has always complied, and continues to comply, with all of its financial reporting obligations under the DTR1 Operating Agreement and the DTR1C Management Agreement.”

This article originally appeared in the June 23, 2014 print issue as, “Dust-up in the desert”.

LINK: Desert Troon Potentially Linked to Scam In Norway (Dagens Næringsliv report)


Watchdog Reporting and The Public Safety Pension

Watchdog reporting is one of The Arizona Republic’s priorities

Cherrill Crosby, The Republic | January 10, 2015

PSPRS FBI Subpoena Sought Files Related To Desert Troon Companies And CIO Ryan Parham’s Confidential Letters

By Randy Diamond | August 12, 2014

A federal grand jury investigating the $7.9 billion Arizona Public Safety Personnel Retirement System sought several hundred files related to PSPRS’ investments with its largest real estate manager, Desert Troon Cos., and confidential letters the pension fund’s Chief Investment Officer Ryan Parham wrote to PSPRS board members, the subpoena shows.

Judicial Watch provided the document to Pensions &Investments on Tuesday morning.

The vote by the board to release the document came on the same day the board voted 4-2 to give Mr. Parham a two-year contract extension as the pension fund’s CIO.

Mr. Parham, who makes $268,000 a year and is the highest paid state employee in Arizona, will not be getting a raise. But he will receive two $25,000 retention bonuses over the next two years.

Mr. Parham was a key proponent of a plan that increased the value of PSPRS’ portfolio with Desert Troon by calculating the investments at its value based on recovery of the Arizona real estate market, instead of its market value.

The portfolio had declined in value after the collapse of the Arizona real estate market during the recession.

Three of the pension fund’s investment officers and the chief counsel for its investment office all resigned last year over the valuation dispute, maintaining it was improper for the retirement system to calculate the Desert Troon investments at potential future value instead of a market-based appraisal.

The documents requested by the federal grand jury include valuation records regarding appraisal of the Desert Troon portfolio and confidential written investment reports Mr. Parham sent to the PSPRS board between 2010 and 2013. Sources say those reports included Mr. Parham’s comments on the performance and value of the Desert Troon portfolio.

James Hacking, the pension fund’s former administrator, has insisted that retirement system officials acted properly and in the best interests of PSPRS regarding the valuation of the Desert Troon portfolio.

Mr. Hacking was terminated last month over another controversy involving his approval of pay raises for some members of the retirement system’s investment staff without the required approval of the Arizona State Department of Administration.

The documents named in the federal grand jury subpoena are a subset of documents taken from PSPRS by Anton Orlich, one of the investment staffers who resigned over the controversy involving Desert Troon.

The pension fund had filed a lawsuit in Maricopa County Superior Court last October demanding the return of the documents that Mr. Orlich said in legal filings he took to protect them from being destroyed.

Mr. Orlich received a federal grand jury subpoena earlier this year for the documents. But he turned over the documents to the Maricopa County Superior Court for safekeeping as part of an agreement with PSPRS until the legal dispute was settled.

The federal grand jury then subpoenaed PSPRS for the documents related to Desert Troon.

Agency expands probe of public safety pension

See the video link:

Agency expands probe of public safety pension system

Craig Harris, The Republic | May 6, 2014

The Arizona Department of Administration has expanded its investigation of workplace violations in the Public Safety Personnel Retirement System to include sexual harassment, a record obtained by The Arizona Republic shows.

The ADOA disclosed last month that it was examining charges of discrimination and retaliation at PSPRS following a controversy in which some staff members raised questions about whether real-estate investment values were inflated in order to trigger bonuses.

Now, ADOA Human Resources Director Marie Isaacson has informed an ex-employee that the state was looking into concerns of sexual harassment. Her April 25 letter did not indicate the target.

The Republic last year reported that the retirement system had given a $5,670 bonus to a senior manager despite his having been disciplined in May 2012 for making comments with a “sexual overtone” to a female colleague when he told her to “sit on the copy machine.”

The Republic acquired Isaacson’s letter from one of five people who have filed workplace complaints against the pension system. Jeff Grant, an ADOA spokesman, said Monday that he could not comment or release any documents pertaining to the investigation.

The state inquiry into workplace complaints at the roughly $7.7 billion trust for police officers, firefighters, elected officials and correctional officers coincides with a federal criminal investigation into whether the system used higher estimates of value on real-estate investments managed by Scottsdale-based Desert Troon Cos. to trigger bonuses for certain investment managers.

Jim Hacking, the trust administrator, has denied the allegations, blaming the scrutiny on disgruntled employees who are “motivated by malicious intent, with the allegations made in reckless disregard for the truth,” according to a letter he posted on the system’s website.

Hacking stated that “we believe that these persons knew or should have known that their allegations were untrue at the time they made them.”
Hacking declined Monday to be interviewed. Christa Severns, a system spokeswoman, said the trust was unaware that ADOA was conducting an investigation.

Hacking’s statements in his online letter are similar to language Desert Troon used in a lawsuit it filed last Friday against four former high-ranking PSPRS employees, including the trust’s one-time in-house counsel.
Troon, which is an investment partner with the trust, has sued former PSPRS portfolio investment managers Anton Orlich, Paul Corens and Mark Selfridge and former PSPRS in-house counsel Andrew Carriker.

Severns said PSPRS is not involved in the Troon suit.

The PSPRS employees targeted in the suit quit last year in protest, expressing concerns about how PSPRS was reporting the values of properties managed by Troon.

Troon, which co-owns or manages real-estate projects in Arizona, Colorado, Texas and Utah, accuses the four of engaging in a post-employment conspiracy to defame and falsely disparage senior management at the company and the pension system.

The suit also accuses them of communicating false statements to media members, including The Republic, and of intentional interference with business expectancies, unlawful interception of electronic communications and misappropriation of trade secrets.

The suit says a report regarding Desert Troon that Carriker wrote for the board before he left included “materially disparaging and defamatory statements.” In it, Carriker says Desert Troon has been one of the trust’s poorest performing investments, noting that the pension system had received only a $500,000 distribution from Troon during the previous five years.

The suit seeks an unspecified financial award.

Though there have been accusations that the system used inflated values, trust records show that Troon-managed properties have been among the worst-performing real-estate investments for the system the past few years and that those properties have lost value every year since 2009.

The trust, as of June 30, 2013, lost at least $109 million in real-estate value on nearly $450 million in investments managed by Troon, according to the system’s annual financial records. Overall trust investment losses are a key factor in causing government employers to make larger financial contributions to keep the trust financially sound.

Corens, a former system real-estate portfolio manager, said he had warned the state Department of Administration in writing when he became a whistle-blower that he feared future legal action could occur. He said Troon’s suit is intended to “intimidate me and silence my issues” as well as financially harm him.

Selfridge, also a former real-estate portfolio manager, said that the allegations are false and that the suit is intended to silence and intimidate him.

Orlich and Carriker declined to comment.

Orlich, who also is being sued by PSPRS over records he removed when he quit, has been interviewed numerous times by the FBI since quitting. A federal grand jury has subpoenaed records from PSPRS regarding real-estate valuations. Orlich has said that he took the records out of fear they would be destroyed.

The FBI and U.S. Attorney’s Office declined to comment.

A Whistleblower At The Arizona Public Safety Personnel Retirement System
CLEAA: Pension Recap – Whistleblower at AZ PSPRS

Posted on: March 21st, 2014

Over the past several months there have been a number of unsettling pension articles in local newspapers both in Tucson and Phoenix, and even alarming messages from PSPRS itself [possible data breach].

Based on the aforementioned “breach” of confidential data by an apparent “whistleblower”, PSPRS sent letters to individual members offering free “Life Lock” services for 1 year to “protect” member information. Coincidentally, all this was on the heels of complaints to the Attorney General’s office citing mismanagement of pension assets via a request for an investigation by APA Executive Director Levi Bolton.

Prior to this request CLEAA leadership met and concurred with this action as information unfolded. A Grand Jury has now convened investigating said allegations.

While it is true our Public Safety Pension systems are not 100% funded, it is also true that they will remain sustainable for all our existing members, albeit through increased employer contributions as necessary. While no one is certain what future funding will look like, we do know that current members of the PSPRS system are guaranteed their benefit by both the AZ Constitution and 40 years of contractual law( Link) Fields Case News Release (SB1609 PBI Changes ruled unconstitutional).

There have historically been some gestures by the legislature to move new hires into a DC system; however evidence shows that a Defined Contribution system will present a financial burden to the State Budget and the notion that DC is better than DB has been debunked through study groups in AZ and pension strategist nationally. While it is true that the recent reversal of Legislative changes of SB1609, in the 2011 legislature, will cause the pension financial pressure, it is also a fact that the status of the pension continues to be sustainable. To that end, CLEAA is currently collaborating with our affiliate APA and will soon release particulars of a positive strategy that will safeguard current and future pensions for public safety statewide; stand by as these innovative details are disclosed.

As CLEAA members, take comfort knowing that the fight to maintain your hard-earned pensions is being led by seasoned lobbyist and leaders in both CLEAA and APA who recognize the magnitude of the issue and have actual leadership boots on the ground at all venues.

This is how CLEAA does business for its membership, unlike the smoke & mirrors of urgent bulletins employed by misguided organizations who purport to represent the interest of public safety in southern Arizona.


Lu Ebratt / Executive Director, CLEAA

Arizona Public Safety Pension Officials Maintain Secrecy

Pension trust sued to disclose federal subpoena

Trust officials maintain secrecy while seeking legal advice

Craig Harris, The Republic | 1:37 a.m. EDT March 18, 2014

Story Highlights:

o   Watchdog group tries to force pension system to disclose federal subpoena.

o   Records are at the heart of an FBI investigation into the pension trust.

o   An FBI investigation is trying to determine if pension investments were overvalued to trigger staff bonuses.

Judicial Watch, a non-profit watchdog that promotes transparency, has sued the Arizona Public Safety Personnel Retirement System after the trust refused to release a copy of a federal grand-jury subpoena that is part of a criminal investigation into the pension system.

“When government agencies, politicians and bureaucrats don’t want to turn over documents like the law requires, it’s safe to make the assumption that they have something to hide,” said Tom Fitton, president of the Washington, D.C.-based group.

The suit, filed late last week in Maricopa County Superior Court, alleges the pension system violated the Arizona Public Records Law by “improperly withholding and failing to provide access to the requested record.” The system asserted the subpoena was not a public record, the lawsuit says.

Judicial Watch successfully forced Phoenix in 2012 to release information about former Mayor Phil Gordon’s security detail, which the city had maintained was not public record.

Jim Belanger, an attorney with expertise in criminal law who was recently retained by the pension trust, declined to comment.

Judicial Watch made its request for the subpoena after The Arizona Republic this month reported that the pension system for Arizona police officers and firefighters had received a subpoena to turn over documents as part of a criminal investigation into whether pension-trust managers inflated certain real-estate investment values to trigger staff bonuses.

System officials have denied any wrongdoing.

Efforts by the U.S. Attorney’s Office to obtain sensitive information via the subpoena comes after the system’s in-house counsel and three high-level investment analysts quit in protest last year because of concerns about the way real-estate values were being recorded.

The system also has refused to provide The Republic with a copy of the subpoena, even though Assistant Arizona Attorney General Ivy Voss, a lawyer who represents the trust, said in a March 7 interview that she was “sure” that the document was a public record that should be released.

Voss and the Attorney General’s Office have backed away from that position. A statement from Voss to the newspaper on Monday said in part:

“There has been no formal determination by the Attorney General’s Office whether or not any subpoena received by the Board of Trustees of the system is a public record.

“The system has retained counsel to advise concerning issues connected with an ongoing investigation; however, no one in the Attorney General’s Office has seen or reviewed a subpoena connected with that investigation.”

Voss, during her tape-recorded interview with The Republic, told the newspaper that the U.S. Attorney’s Office, through the subpoena, was seeking a “long list of documents.” Voss also told The Republic that the documents being sought were the same as those a former employee, Anton Orlich, had taken from the system.

Orlich, who is now a key witness in the FBI probe, has said he took the documents last year out of concern they would be destroyed. The pension system is suing Orlich for return of those records. Deposition transcripts show a private attorney for the trust has used interviews in connection with that lawsuit to gather information about how the federal government is conducting its criminal probe.

A Superior Court judge forced Orlich to turn the disputed records over to the court.

Now, the federal government appears to be seeking those same records.

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/  – 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.

Arizona Public Safety Pension – A Story, Within A Story, Within A Story

All is not as it seems at the Arizona Public Safety Personnel Retirement System according to Craig Harris of the Arizona Republic and NBC Phoenix Channel 12 News –


Pensioners First doesn’t believe that PSPRS is being entirely truthful (just a little truthful).  Their spokesperson sure seemed squeamish on camera.

A half truth is still a whole lie – The Jewish Women’s Renaissance Project

The Torah tells us “mid’var sheker, teer-chak” (from a false thing, distance yourself). – The Jewish Women’s Renaissance Project

Don’t mess with a Jewish woman and don’t believe everything that PSPRS’ management and board says to the media!

52,000 pensioners and 6.5 million taxpayers are watching!

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