Republican Gov. Chris Christie's administration has over the past five years paid at least $6.5 million in taxpayer fees to Prudential Financial to manage New Jersey pension funds, even after company officials made substantial contributions to Christie's 2009 gubernatorial campaign, International Business Times has learned. One of the Prudential officials was Christie's top fundraiser, adviser and donor. Christie appointees nonetheless maintained investment contracts with Prudential despite state rules that require such contracts to be canceled when executives at firms managing pension money donate to or raise money for state lawmakers.
“It sounds like it’s a clear conflict with the rules,” said Melanie Sloan, a former U.S. Department of Justice official who served as executive director of the watchdog group CREW (Citizens for Responsibility and Ethics in Washington), after IBTimes described its findings. “It seems like this thing is a clear violation of the rules. The rules just haven’t been enforced and now everyone is scrambling for cover.”
State documents show that Jon Hanson, who served on Prudential Financial’s board of directors until 2011, and his wife each donated $6,800 to Christie’s campaign in 2009. While leading Prudential, Hanson also served as finance chairman of Christie’s gubernatorial campaign, spearheading Christie’s fundraising operation. In 2009, when Hanson donated and raised the campaign money, New Jersey was investing hundreds of millions of dollars of state pension money in the company’s subsidiaries.
Rules from the New Jersey State Investment Council, which oversees the state’s pension fund, mandate that the state “terminate the contract” of any firm managing state pension money if that firm’s senior officials donate more than $250 to the governor, or solicit money for the governor’s campaign. Yet, even after Hanson made donations and raised money for Christie’s election, the Christie administration’s investment council continued to invest roughly $366 million of state pension money in Prudential funds, according to New Jersey documents. In 2011, Christie appointed Hanson’s son, James, to the council, where he currently leads the audit committee.
A spokesman for Hanson’s real estate firm, the Hampshire Companies, did not respond to questions from IBTimes, saying they had been forwarded to Christie’s office and to Prudential. The Christie administration declined to comment, referring questions to the Treasury Department. Attempts to contact the Treasury were unsuccessful.
A Prudential spokesman, Scot Hoffman, told IBTimes that the company had done nothing wrong. “Prudential has complied with the state of New Jersey's disclosure requirements over the many years of its business relationship with the state pension fund,” Hoffman said.
Hanson, who served on Christie's transition team and was appointed by Christie to a powerful state advisory commission, has reportedly been raising money for a political action committee supporting Christie’s prospective presidential campaign. A spokeswoman for the PAC wrote in an email to IBTimes that Hanson has donated but “has no role/formal title with the PAC.”
Revelations about Hanson’s financial support of Christie and New Jersey’s investments in Prudential follow a series of similar disclosures showing that the Christie administration has moved state pension money into financial firms whose executives have made Republican campaign contributions. The administration’s shift of state pension money into those private financial firms has coincided with a significant increase in taxpayer fees paid to financial firms. Those fees have spiked at the same time Christie has said the pension system is so strapped for cash it must reduce retirement benefits to public employees.
As one of Christie’s closest advisers, Hanson has been at the center of recent controversies. Hanson is a director at Yankee Global Enterprises, which owns a stake in Legends Hospitality, along with the Dallas Cowboys. A contract awarded by the Port Authority of New York and New Jersey, for Legends to operate an observation deck at the top of One World Trade Center, was heavily criticized by Democratic lawmakers after it was revealed that Christie had accepted free football tickets and travel to Texas for a Cowboys game from the team’s owner, Jerry Jones. Legends also stands to benefit from a move by the Christie administration to shut down the Izod Center, a state-run arena in East Rutherford that competed with Newark's Prudential Center -- a privately owned facility where Legends has a lucrative concession contract. The Hanson-led Advisory Commission on New Jersey Gaming, Sports and Entertainment pushed for the Izod's closure.
Though those investments were initiated before Christie took office, State Investment Council rules stipulate that officials at investment firms managing pension money cannot make donations to state officials “during the term” of any investment -- the idea being that campaign cash should not be able to sway those officials’ ongoing decisions about whether to continue investing in, and paying fees to, particular financial companies. Those fees can be highly lucrative, as New Jersey’s Prudential investments illustrate.
State documents obtained in late 2014 by the Philadelphia Inquirer show that New Jersey paid more than $6.5 million in fees for those investment vehicles between 2010 and 2013. The most recent investment council report shows New Jersey continues to invest almost $200 million in pension money in three of the four vehicles, continuing to pay fees to Prudential even though the investments have underperformed both low-fee bond and S&P 500 index funds.
Company documents show Hanson was paid at least $920,000 during his time at Prudential and that he owned more than $2.4 million worth of company stock the year he retired from the board. But Hoffman, the Prudential spokesman, asserted that Hanson was not covered by the state rules because he was “an independent director” and “not an investment management professional employed by Prudential.”
This line of reasoning appears to collide with New Jersey’s so-called pay-to-play rules, which restrict contributions from firms managing state pension money. Those rules explicitly define a covered “investment management professional” as “any person associated with an investment management firm, its parent company, or any other entity that controls the investment management firm, who is a member of the executive or management committee of such firm or controlling entity, or similarly situated officials.”
While he was raising money for and making donations to Christie’s first election bid, Hanson was listed on Prudential documents as the company’s lead director, and chairman of its executive, finance and investment committees. Hanson wasn’t the only Prudential official who lent financial support to Christie’s causes at a time when the Christie administration was investing state pension money in the company.
Since 2009, Prudential itself has given $175,000 to the Republican Governors Association, which Christie chaired last year, according to Political Moneyline. Prudential’s Chairman and CEO, John Strangfeld, has served as chairman of the New Jersey governors mansion fund since Christie took office, and Prudential has contributed at least $150,000 to the nonprofit organization. Prudential has also donated generously to Choose New Jersey, the nonprofit that has funded Christie’s foreign trips.
Campaign finance records show that at least one other Prudential executive donated to Christie’s 2009 campaign. Anthony Fiore, then a vice president with Prudential Investments, gave $2,000 to the governor’s campaign. Currently a Republican committeeman in Middletown and a senior vice president at Prudential, Fiore’s bio describes him as “a certified retirement and pension specialist.” Still, Prudential's spokesperson asserted that "Fiore did not meet the definition of an investment management professional" under New Jersey rules, though he provided no further explanation. Fiore did not respond to a request for comment about his contributions to Christie.
In addition to pension investments, Prudential has received other benefits from Christie. The New Jersey Economic Development Authority has granted Prudential a $211 million tax incentive to build a new headquarters in Newark, blocks from its old one.
The governor’s administration also awarded a $223 million tax break to Sayreville Seaport Associates, which is developing a mall and residential community on land polluted by industry for decades. That company is majority-owned by Prudential’s PRISA II subsidiary, in which the state pension has invested $100 million.
In May, the Christie administration renewed Prudential’s contract to manage the state’s $3.3 billion defined contribution retirement plan. In late 2013, the Economic Development Agency awarded a $106 million subsidy to a development partnership that included Hanson’s real estate company, though his firm said it would no longer be involved in the project after the Guardian raised questions about it.
Following the recent disclosures about state pension investments flowing to campaign donors, New Jersey lawmakers passed bipartisan legislation to strengthen the state’s existing pay-to-play rules. The bill, which overwhelmingly passed both houses of the state’s Legislature, aims to overturn a 2014 move by the Christie administration to exempt federal campaign contributions from the investment council’s rules.
“There should never even be a hint of political favoritism when it comes to investing our retirees’ pension money,” said New Jersey Democratic state Sen. Shirley Turner, who sponsored the initiative. The legislation, which also mandates more expansive disclosure of fees paid to financial firms, could complicate Christie’s efforts to raise Wall Street cash for a 2016 White House bid. It is now awaiting Christie’s signature or veto. The governor has not said whether or not he will sign it.
Matthew Cunningham-Cook contributed research to this report.