Having just co-authored an article about the Foreign Corrupt Practices Act ("FCPA") and its application to pension plans, the topic of economic inducements and fiduciary duties is fresh on my mind. As part of my research, I investigated what "pay to play" rules currently exist and what initiatives are underway to avoid inappropriate monies being paid by vendors to persons who control or have influence over the public purse. Certainly the topic is attracting attention. On October 8, 2013, the Superintendent of the New York State Department of Financial Services ("DFS"), Benjamin M. Lawsky, wrote to the Honorable Thomas P. DiNapoli, Comptroller of the State of New York, about the auditing of government pension plans and their service providers. "Controls to prevent conflicts of interest, as well as the use of consultants, advisory councils, and other similar structures" was listed as one of several areas of emphasis.
Jump ahead to this week's headlines and, not surprisingly, "pay to play" appears once again. With his June 9, 2014 press release, New York City Comptroller, Mr. Scott Stringer, announced the approval by all five New York City pension plans (with roughly $150 billion in assets) to ban the use of placement agents. This extends the prohibition of placement agents for all asset classes and not just the restriction imposed earlier for private equity investments. Click to read "New York City Pension Funds Enact Placement Agent Ban" for a list of the current trustees for the New York City Employees' Retirement System, Teachers' Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System.
The "thumbs up" from New York City pension plan trustees follows Comptroller Stringer's six point plan that he announced on January 30, 2014. Besides putting the kibosh on the use of placement agents, his office intends to "...dramatically reform policies and procedures governing [Bureau of Asset Management] by appointing senior risk and compliance officers to strengthen, monitor and continually improved operations..." Investment disclosures about personal trading of in-house fiduciaries is part of the game plan for New York City pension plans.
On a separate note, disclosure mandates about personal trading for members of the U.S. Congress and their aides and federal employees making more than $119,554 appears to have taken a step backwards with respect to government sunshine. According to "Insider Trading in DC Just Got Easier" by John Carney (CNBC.com, April 16, 2013), a modification of the Stop Trading on Congressional Knowledge ("STOCK") Act was passed by lawmakers on April 12, 2012 and then signed into law on April 15, 2013. As a result, any disclosures about personal trades that are part of the public record "aren't readily available...and have to be requested from individual agencies using the names of the individuals about whom information is sought." When asked about the change in disclosure requirements for all but the President, the Vice President, Members of and candidates for Congress and certain appointed officers, White House Press Secretary Jay Carney referred to recommendations made by the National Association of Public Administration ("NAPA") as the basis for "indefinite suspension" due to "substantial national security, personal security, and law enforcement issues on this matter." You can decide for yourself. Click to download "The STOCK Act: An Independent Review of the Impact of Providing Personally Identifiable Financial Information Online - A Report by a Panel of the National Academy of Public Administration Submitted to the Congress and the President of the United States" (March 2013).