The head of a New Jersey board that determines how the state invests its pension money was in direct contact with top political and campaign fundraising aides for Gov. Chris Christie as the governor last fall mounted a successful bid for a second term.
The meetings between Christie's political team and the state's pension overseer challenge assurances from the governor that the investment of state pension funds has been fully insulated from the political process. The meetings occurred as Christie's campaign benefited from contributions from executives at financial firms that have secured lucrative contracts to manage growing slices of New Jersey pension money.
State and federal laws severely restrict campaign donations from companies that manage state pension money. These so-called pay-to-play rules are aimed at preventing pension funds from being invested according to political dictates rather than in pursuit of the greatest return. A former federal prosecutor cognizant of such laws, Christie has maintained that New Jersey's pension funds have been effectively walled off from political influence.
"Nobody but the state investment council makes decisions on how pension funds are invested," Christie declared during a May radio interview. "I've never once made a phone call to Bob Grady, the chairman of the investment council, or any of the commissioners or any of the employees to tell them how to invest."
But a series of calendar invites sent electronically by Elise Dietsch, a top fundraising official for Christie's campaign, to several of his senior campaign aides and officials in his administration described a "weekly call" whose "required attendees" included Robert Grady.
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The International Business Times found the calendar invites amid a 290-page trove of documents released in June by the New Jersey Legislative Select Committee on Investigation, which is probing last year's controversial partial shutdown of the George Washington Bridge. (Click here to view the calendar invites.)
The SEC declined IBTimes request for comment. But in prosecuting a recent case, the agency promised aggressive enforcement of its pay-to-play rules. Former Securities and Exchange Commission Chairman Arthur Levitt -- who spearheaded the agency's original pay-to-play law -- said that the optics of the communication between the pension manager and Christie's political apparatus were troubling.
"This may not be illegal, but it is immoral," Levitt told the IBTimes. "The management of retirement funds upon whose very lives the pensioners depend requires judgments being made by professionals whose only concern is what is in the best interest of the pensioners. Those decisions cannot be made to suit a political objective or a political cause. Custodians of people's money have to be really pure, and both the perception and reality of conflict are terribly important. I can't say this is illegal on its own -- but I think the perception of conflicts of interest are profound."
“The principal topics discussed on these calls were the Governor’s schedule, preparation for debates against his opponent, media strategy, and general campaign strategy,” Grady wrote. "At no time was the New Jersey pension fund discussed or was any manager hired by the New Jersey pension fund discussed. At no time was any pension business or any pension investment decisions discussed on these calls.”
Reached by phone, Dietsch confirmed the existence of the meetings, but said she could offer no details on the agenda, referring inquiries to Grady. The other invited attendees did not respond to IBTimes’ requests for comment. Neither did Christie.
The five calendar invitations released by the governor's office to the investigative committee detail conference calls that were to be held the following day. The calendar items were sent between Sept. 12 and Oct. 24, 2013, in the late stages of a campaign that saw employees of firms with contracts to manage New Jersey pension funds contribute tens of thousands of dollars to the war chests of Republican groups supporting Christie’s re-election.
The text of New Jersey's pay-to-play law describes the statute as intended to combat "widespread cynicism among the public that special groups are 'buying' favors from elected officeholders." The SEC's pay-to-play rule states that political fundraising considerations intertwined with pension investment decisions can "distort the process by which investment advisers are selected (and) can harm advisers’ public pension plan clients."
Communication and planning between New Jersey's top investment official and campaign aides raising money for Christie's re-election are not explicitly prohibited by these rules. The five calendar invitations released to the state investigative panel do not make clear what was to be discussed at the planned meetings or whether Grady and Christie's campaign officials scheduled additional meetings.
But the mere existence of a channel between the Christie campaign and the body overseeing pension management complicates the governor's depictions of a firewall separating those funds from political considerations while raising ethical and legal questions, say lawmakers and outside experts.
"Clearly it raises concerns because you would hope the person who is making significant pension decisions isn’t making them with a political taint," said New Jersey Assemblyman John Wisniewski, the Democrat who heads the New Jersey panel investigating allegations that Christie's office intentionally generated traffic jams on and around the George Washington Bridge to punish political enemies. "This raises legitimate questions about the Christie administration's objectivity in making the investment decisions on behalf of all the pension recipients."
In the course of Christie’s five years as a gubernatorial candidate and sitting governor, employees and others affiliated with firms managing New Jersey pension money contributed more than $167,000 to his campaign and those of other New Jersey Republicans while giving more than $3.9 million to the Republican National Committee, according to state and federal campaign finance records. The national party spent heavily in New Jersey to support Christie's candidacy.
At the same time, campaign finance records show employees and political actions groups affiliated with firms managing New Jersey pension money have given more than $7.1 million to the Republican Governors Association, which spent hundreds of thousands of dollars in support of Christie’s re-election campaign. Christie now leads the RGA and has served on its executive executive committee since 2011.
Rules governing the State Investment Council mandate that investment management contracts must be awarded to firms “based on the merits of such firms and not on the political contributions made by such firms.” During Grady’s tenure, some of those pension management contracts have been awarded to financial firms in close chronological proximity to Republican campaign contributions by executives of those firms.
New Jersey Department of Treasury records show that, three years ago, the hedge fund Third Point LLC received a $100 million pension investment from Grady’s state investment council. The investment came a few months after Third Point's founder and CEO Dan Loeb gave $400,000 to the RGA, according to campaign finance data from PoliticalMoneyLine.com.
The next year, Elliott Associates received a $200 million pension deal from New Jersey. PoliticalMoneyLine data show the investment followed the firm’s founder and CEO, Paul Singer, making a $250,000 contribution to the RGA only days after Christie was elected vice chair of the organization. That same year, Lazard Rathmore received a $150 million pension deal just before Lazard's Herbert Gullquist made a $25,000 contribution to the RGA, according to PoliticalMoneyLine data. General Catalyst received a $15 million New Jersey pension investment a few months after General Catalyst executive Charles Baker -- now a Republican candidate for Massachusetts governor -- made a $10,000 contribution to the New Jersey Republican State Committee.
In 2013, state records show Northwood Investors received a $200 million pension deal from New Jersey. According to Federal Election Commission documents, that investment came a few months after Northwood COO Erwin Aulis made a $25,000 contribution to the Republican National Committee, which that year spent heavily to support Christie's re-election. Also in 2013, Grady’s state investment council awarded an additional $150 million of pension money to Omega Advisors months before Omega executives made $36,400 worth of contributions to the RNC, according to FEC data.
Additionally, New Jersey campaign finance documents show that during Christie's re-election campaign, his campaign received more than $16,000 of contributions from employees of firms that manage New Jersey pension money. In its recent pay-to-play prosecution, the SEC fined a firm for contributions totaling $4,500.
For Christie -- now reportedly mulling a run for president -- the emergence of calendar items tying Grady to his campaign operation may weigh on his his efforts to present himself as a constituent-minded pragmatist who operates above the political fray. In recent months, evidence has emerged that Christie officials have been directing state tax breaks and subsidies to firms that have contributed millions of dollars to Republican political organizations.
Under what’s known as the “exclusive benefit” principle, fiduciary laws bar those managing pension monies from considering any factor other than financial returns for retirees when making investment decisions. Because pension officials have a responsibility to invest money solely in the interest of retirees, political considerations or campaign fundraising cannot be part of investment decisions.
Yet when Christie appointed Grady to the part-time position heading the state investment council four years ago, he was effectively installing a major political player. A big Republican Party donor and former White House official, Grady has been one of Christie's longest-serving political mentors and has been described by the Asbury Park Press as a “national GOP force.”
Grady also had financial experience as a partner in the Carlyle Group, an investment firm whose funds he still owns a stake in, according to New Jersey financial disclosure documents. In 2012 and 2013, Grady's state investment council approved a $300 million pension investment in a Carlyle fund and a $150 million pension investment in a Carlyle subsidiary, Claren Road. Grady recused himself from the final vote on the contracts.
During Grady’s tenure as head of the State Investment Council, the state has plowed more state pension funds into riskier forms of investment such as hedge funds, private equity firms and venture capital firms. At the same time, those financial players have injected substantial campaign contributions into state races.
A recent analysis by Pensions & Investments magazine found New Jersey now ranks second in the nation in total hedge fund investments.
This shift has proven rewarding for financial players: The state's pension contracts have generated more than $378 million in fees paid to the financial managers entrusted with retiree money, according to the pension system’s financial statements.
Grady told IBTimes there was nothing inappropriate about his regular communications with Christie’s political and campaign fundraising officials.
"At no time was fundraising discussed, except for Mr. Palatucci periodically reporting to call participants on the aggregate amount of money available for media placement,” he wrote. "I did not participate in any fundraising activities on behalf of the campaign, and did not participate at any time in any discussion of fundraising targets for the Governor’s campaign.”
South Carolina Treasurer Curtis Loftis, a Republican critic of Wall Street fees paid by public pensions, told IBTimes that regular communications between investment officials and campaign aides are problematic.
"People appointed to pension investment positions should not have any contact with the re-election committees of those that appointed them or those that are close to those who appointed them,” Loftis said. "These investment positions are positions of trust and if you are in one of these positions, you give up your right to play in partisan politics. There are legal and ethical lines you can't cross, and this situation (in New Jersey) appears to have stepped over that line. The amounts of money pension boards deal with is massive and it is completely unacceptable to have that risk of politicizing investment decisions."
Adam Liebtag, a union representative who serves with Grady on the State Investment Council, called on authorities tasked with enforcing pay-to-play rules to probe the revelations of contact between Grady and the governor's political and fundraising operation.
“Every pensioner and resident of New Jersey should be concerned about political influence in pension decisions," he said. "There are billions of dollars at stake and the economic security of thousands of members who have paid their fair share into the system only to receive a modest pension at the end of a career. In my opinion, investing with a political donor or supporter, or lack of total disclosure by any firm receiving the funds and the trust of pension members, should be aggressively and impartially investigated."