NJ Pension Fund Scandal: Chris Christie’s Nose is Getting So Long He Needs to Get a Hacksaw

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If you see politics as a form of bloodsport, there’s nothing more fun that seeing a politician start attacking a reporter. That almost without exception means the charges have hit a weak spot, that the incumbent has little to no valid defense and instead starts lashing out.

In this case, it’s particularly amusing to see New Jersey governor Chris Christie as the would-be pugilist. We are seeing that while Garden State pols may be great on the offensive in bare-knucle fights, they have a glass jaw when put on the defensive.

Here, the combatants are International Business Times reporter, David Sirota, against various officials with close ties to Christie who administer state pension funds. Sirota has been making a mini-speciality of state pay-to-play scandals. From an earlier post on the New Jersey contretemps:

…the IBT journalist has uncovered questionable connections with two prominent figures, Charlie Baker, who is a Republican gubernatorial candidate in Massachusetts, and former New Jersey pension fund chief Robert Grady.

First, a short background on the Baker story: Sirota showed how that Baker made a $10,000 donation to the New Jersey Republican Party shortly before Christie officials gave Baker’s firm a pension management contract. That donation ran afoul of the Garden State’s pay-to-play rules that bar contributions from executives and partners of entities that manage state pension funds.

New Jersey launched an investigation into Sirota’s charges and announced that as a result, it was exiting the contract with Baker’s firm.

In a sign that Sirota is drawing blood, Christie himself, as well as members of his administration, have launched personal attacks on Sirota rather than making honest rebuttals to his charges (another strategy has been to misrepresent the stringent requirements of the state pay-to-play law)….

Sirota has also been probing the relationships among state pension fund investments and the holdings of long-standing Christie friend and pension fund overseer Robert Grady. The Christie administration has denied, forcefully, that Grady had any financial interest in firms that benefitted from New Jersey pension fund investments on his watch. That word “interest” is critical, because that’s the term of art in the New Jersey pay-to-play law. And in reading the discussion that follows, bearing in mind that New Jersey rules bar state officials from “being involved” in “any official manner” in which they have direct or indirect personal or financial interest.

Yves again. Sirota documented multiple connections between New Jersey pension contributions and firms in which Grady has a role. While yours truly is no attorney, Grady’s involvement certainly looks to extend well into the “indirect personal or financial interest” territory and could well amount to a direct interest. And Grady was involved in an official capacity, having tabled and voted in favor of investing in the Blackstone fund that had or wound up having relationships with firms in which he had a financial interest.

So what is the Chris Christie response? The Big Lie.

In a press conference, (see starting at the 17 minute mark), Christie asserts that New Jersey officials don’t vote on specific investments.

That’s patently false, as Sirota already demonstrated, with links to state records of the votes:

Gov. Christie recently suggested that Grady’s State Investment Council plays no decision-making role in considerations of individual investments. “They don’t make the decisions on the individual things that we buy,” Christie said at a press conference last week. “They set out categories of the way they want to see it done, and then professionals that we hire, both in the Department of Treasury and outside, have made those choices.”

In fact, state records document that the council explicitly voted to approve the Blackstone investment.

Sirota issued a longer-form takedown today. Key sections:

“There’s no appointed people in my administration who make those [investment] decisions,” he [Christie] said Monday in Connecticut in response to reporters’ questions. “Those decisions are all made by the folks in the Department of Treasury who are career employees, and the appointed folks that are on the pension board, both Republicans and Democrats, don’t make the decisions about individual investments. They say, ‘This is the general category,’ and then they let the professionals make those decisions.” 

He added: “Nobody from me on down [in] the governor’s office has any input into where we invest our money nor do the people that we appoint to the pension board. They set general goals — and by the way, there’s both union representatives and administration representatives on that board — and all of them have said they have absolutely no input into where the money is invested.”….

The minutes of the State Investment Council (which Christie appoints, and whose official mission is to “formulate policies governing the investment of [state] funds”), show his appointees not only oversee the state’s due diligence reviews of specific managers but also offer guidance to New Jersey Treasury Department officials about managers. Christie appointees at times cast votes on specific investments and have spearheaded the recruitment and subsequent appointment of the official who runs the state’s Division of Investment.

According to minutes of the State Investment Council, most of New Jersey’s investments in private equity, hedge funds, venture capital and other so-called alternative investments are reviewed by Christie appointees on the Investment Policy Committee (a subcommittee of the State Investment Council). Typically, the minutes show State Investment Council Chairman Robert Grady reports the committee “discussed the investment and was satisfied that the due diligence that was performed was adequate and appropriate…..” 

The State Investment Council debates the merits of specific investments in open session, offering advice to Department of Treasury staffers about the specific money manager being given a New Jersey pension contract. Because the council has influence over the selection of specific managers, Grady and another Christie appointee, real estate investor Jeffrey Oram, have recused themselves from deliberations that involve managers to whom they might have a financial connection

Yves here. There’d be no need for recusals if the State Investment Council had no input into decisions. The balance of the article provides examples of the State Investment Council approving or voting down multbillion dollar proposed investments with specific managers.

Not surprisingly, some New Jersey sites, such as the New Jersey Politicker, appear to be incapable of doing reporting and are instead running what looks like dictation from the Christie camp.

So will this scandal hurt Chris Christie on his turf? If he can get enough of the lapdog local media to parrot his patent misrepresentations, he may be able to beat back the pension fund brouhaha. But the more he tangles with Sirota, particularly since the records clearly support Sirota’s charges, the more he calls national attention to the scandal. So we can only hope that Christie keeps digging his hole deeper. It couldn’t happen to a nicer guy.

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  1. The Bulb

    Meh…I work in the investments business, live in NJ, and am a Republican who despises the Big Man. Nonetheless, this “investigation” seems a little too picayune. Just because powerful people are on committees that review specific investments, this typically happens after the investments are made by the troops on the line. Essentially a rubber stamp of what has already occurred rather than a direction of a specific investment.

    But keep the heat on….he deserves it. I, frankly, am more disgusted that pensioners in NJ have to rely on career bureaucrats in the “State Investment Council” for investment expertise. Recall that this is the same crew who put $180 million of cop and teacher money into Lehman Brothers 3 months prior to its failure. Lost $180 million in 3 months!! I remember thinking at the time (since I also was responsible for “trying” to figure out if LEH was solvent) that they had NO IDEA what they were doing.

    1. Yves Smith Post author

      If this were picayne, Christie would be able to blow this off, particularly since Sirota is not at a New Jersey paper or at a big traffic national outlet, like the Wall Street Journal or the New York Times or USA Today. The fact that Christie HIMSELF has been responding says these allegations are serious and he feels exposed or at least feels his buddies Charlie Baker and Robert Grady are exposed and is rushing to defend them.

      And go look at the record. The board does not rubber stamp. Your remark re Lehman is proof the committee has influence. The decision to load up on risk, which included taking subprime bets and buying Lehman stock, was the doing of former hedge fund manager Orin Karmer, who became chairman of the committee in 2007 and pushed through a big change in strategy.

      And Sirota, in keeping, documented how the commmittee has turned down investments recommended by staff and sets policies, and those, as with Kramer’s decision to put more into hedge funds, put more fees in the hands of Wall Street firms. The committee clearly has a say, given that board members have felt compelled to recuse themselves on various votes.

      1. The Bulb

        Fair enough. But you can’t pin Karmer on Christie, the Big Man was not in the job at the time. Plus, if “putting more into HF, more fees into the hands of Wall Street firms” were evidence of inside dealing you could indict just about every PF out there. As you know, they are all underwater and are now reaching for return in a QE world regardless of fees and risk. I agree it’s a foolish strategy, but they are following the herd, not leading it.

        1. Yves Smith Post author

          We’ve clearly stated in past posts that Kramer is a huge Obama bundler.




          I’m well aware of the fact that he is a Democrat and never insinuated that Christie has anything to do with him. That is your straw manning what I wrote.

          I mentioned him simply to rebut your contention that the committee is a mere placeholder organization. The fact that Kramer used it to implement such a big change in strategy proves the reverse.

  2. Jim Haygood

    Christie’s description of the State Investment Council — ‘they set general goals’ — sounds like what it is supposed to do, as opposed to micromanaging the execution of its decisions by picking specific managers.

    The annual report notes on page 23 that ‘the Division paid $378.1 million in management and performance fees and expenses in fiscal year 2013 to the alternative investment and global diversified credit fund managers. These investments totaled $20.3 billion on June 30, 2013. Annual fees in this sector therefore represent 1.9% of the
    June 30 market value.

    ‘Global diversified credit’ (for which $57 million in fees were paid) doesn’t appear in the asset allocation summary on page 10. It’s difficult to discern whether it is a hedge fund or a fixed income fund, and in turn, to work out what levels of fees are being paid, and whether they are reasonable.

    Inconsistent use of categories in the report makes it opaque to decipher, probably by design. Unlike mutual funds and ETFs which are obliged to disclose all their holdings, the SIC’s 2013 annual report lists only the top 10 equity holdings, and categories for everything else (fixed income, real estate, alternative investment, etc). Schedules of asset allocation, fees paid, and annual returns don’t articulate to each other owing to the use of inconsistent categories and breakdowns.

    What a dog’s breakfast of obscurantist gibberish. *FAIL*

    1. susan the other

      I wasn’t really thinking PE is the perfect instrument for under-the-table donations to politicians – with CalPers it appeared to be self-serving small time operators (except that so much money was involved). But Christie. He’s a politician’s politician. PE is money laundering at its best. And pension funds are the last best hope for looters. Can’t let the pension funds fail.

  3. Larry

    Sirota is the kind of relentless reporter we need. When Americans envision their ideal of the the powers granted to a free press, it is so that the press can defend the interests of the many over the powerful few. As Yves notes, too many reporters are simply stenographers at best and lapdogs at worst. They’re like the parody of Luke Russell on the Jimmy Dore show: “Both sides do it Jimmy!”. Everything is a dispute and statements and only if caught in a salacious scandal is a politician ever taken to task.

    I now religiously follow Sirota’s work, so thank you Yves for bringing his reporting to the fore.

    1. diptherio

      It’s gotten so bad in this country that I have had to explain to my fellow citizens, more than once, that simply repeating the pronouncements of politicians and business leaders is actually NOT what journalism is about. Giving us the “he said/she said” routine does not amount to reporting. Journalists are supposed to check-up on statements made by our leaders, look into facts, and generally perform a job that is (or at least should be) considerably more demanding than that of a stenographer. Nowadays, not only do most of our journalists not engage in journalism, but most of our countrymen-and-women have forgotten what journalism even is!

    2. Carla

      “When Americans envision their ideal of the powers granted to a free press, it is so that the press can defend the interests of the many over the powerful few.” Perfectly said.

      This is how I think of Naked Capitalism: Fearless commentary on finance, economics, politics, illuminating the interests of the many over those of the powerful few.

      Thank you, Yves.

      Fellow readers: is 1,000 contributors really too much to ask? C’mon, folks.

      P.S. — great comment, as usual, diptherio.

  4. Nat Scientist

    When big man’s big mouth stops taking victory laps to congratulate himself for non-accusations, like not having fingerprints in planning shenanigans, when the alleged crime was the cover-up, he will drown in the big facts.

  5. indio007

    Ahh… Charlie Baker… remind me to thank him for turning Massachusetts public transportation into a legislatively enforced revenue stream for Wall St. after his peonage under Paul Celluci.

    1. Adam Smith

      The T isn’t the worst thing on our dear Mother Earth, but golly gosh, there are times I’d rather ride a razor blade.

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