Boston “T” FOIA Fight v. Boston Globe Over $25 Million Loss-Making Hedge Fund Investment

Although Freedom of Information battles are sadly pretty routine in the world of big league journalism, a reader flagged a Boston Globe fight with the MBTA pension fund as a bigger-stakes version of some of the arm-wrestling we’ve done with CalPERS. The lesson here, is that defending the incumbents in the organization is depicted as being the same as advancing its mission, when that is just about never the case.

The backstory is that the MBTA pension fund lost $25 million in a hedge fund investment recommended by a former head of the pension fund. Even though the trust is private, the Globe sought records, including board minutes, related to the investment, arguing it was still subject to Massachusetts disclosure laws as a result of a 2013 amendment. Judge Kenneth Salinger ruled in favor of the Globe, but is giving the pension system another go at making a case against releasing the records.

The Globe report clearly comes from internal dissenters, presumably on the board, who opposed the pension’s continued fight to keep the records under wraps. From the article:

The judge has already dismissed several arguments against disclosure, including one that providing documents would amount to the “unconstitutional taking of property without just compensation.” Salinger said the pension board can charge reasonable fees to search and copy documents, as other entities subject to public records do.

The pension board’s lawyer has argued that disclosure could have a “chilling effect” on communications between the fund and its members. The judge said application of the public records law does not appear to violate either party’s free speech.

The pension board also wants to exempt what it considers trades secrets, such as records including details of its investments and deals with financial advisers. The judge indicated the fund could guard such records from the public under the same exemption the larger retirement system for state and local government employees enjoys.

The “details of its investments are trade secrets” argument is one we’ve debunked repeatedly as far as private equity is concerned. The same logic applies to hedge funds.

The sort of information contained in fund agreements, to the extent there is anything of competitive value, is the complicated tax language. Even then, only a handful of law firms write these contracts and devise the tax strategies, so there is nothing unique. For something to rise to the level of being a “trade secret” it has to be so valuable that disclosing it would result in irreparable damage. And it’s really laughable in the case of a money-losing investor. If he has anything unique, it is not putting him in an advantaged position. Similarly, the other documents the pension fund presumably wants to keep hidden, such as financial statements and notices, don’t have any competitive value either. But do the Globe’s lawyers have the financial acumen to persuade the judge these arguments are nonsense? Let’s hope so.

The article got a good number of comments, and the readers are not buying what the pension fund is selling, so the Globe is winning the PR battle, regardless of how it fares in the legal fight. So it has made some progress whether or not it scores a solid win.