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Trusting Wall Street’s Wizards Behind the Curtain: More than $240 billion in public pension money locked in secretive private equity deals

Wall Street reform act giving SEC first look at whether public pension funds are getting ripped off on fees and pay-outs in private equity

Story Filed 2/11/2014 1:03:08 PM (GMT -5)
Story Pulls 2/19/2014 1:03:08 PM (GMT -5)
City Desk Naples-Marco Island, Florida
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Gina Edwards
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Trusting Wall Street’s Wizards Behind the Curtain: More than $240 billion in public pension fund money locked in secretive private equity deals with little taxpayer scrutiny  

Wall Street reform act giving SEC first look at whether public pension funds are getting ripped off on fees and pay-outs in private equity investments

In-Depth Special Report

Reporting By Gina Voss Edwards and editing By Cathy Zollo
Watchdog City Press. Words: 5,600

Orignially published Nov. 6, 2012

Wizardsmallgallery"Trusting Wall Street’s Wizards Behind the Curtain” by national-award winning investigative reporter Gina Edwards explains growing concerns about whether public pension funds — and public employees and taxpayers — are getting ripped off on fees and pay-outs in secretive private equity deals.

The private equity industry has control of more than $240 billion in taxpayer-funded public pension fund money, based on Edwards’ analysis of financial statements from 88 pension funds from all 50 states. (See companion story with a state-by-state breakdown.)

These public pension funds hold the retirement nest eggs of some 20 million teachers, police officers, firefighters, building inspectors, and other public employees.

“Trusting Wall Street’s Wizard’s Behind the Curtain” explains growing concern among some public pension fund managers, academics, union leaders and federal Securities and Exchange Commission regulators about:

■ The accuracy of accounting of private equity investments held by pension funds;
■ Whether some private equity firms are providing misleading information and cutting secret side deals that give preferential treatment to certain influential investors;
■ And whether pension funds — and taxpayers — are getting ripped off by fees and hidden conflicts of interests.

Wall Street reform is giving the SEC a first look at the highly secretive private equity industry that has long lived behind a curtain of confidentiality. Meanwhile, the private equity industry touts that it pumped $140 billion into U.S. companies in 2011 and has provided pension funds with returns that exceed the market.

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About Gina Edwards: Gina Edwards is a national award-winning investigative reporter who specializes in public corruption, securities fraud and corporate crime. During her career, Edwards has uncovered fraud involving hundreds of millions of dollars related to securities fraud, pump-and-dump market manipulation, mortgage fraud, real estate land trust fraud, insurance fraud, hedge funds, mortgage backed securities and Ponzi schemes.

In 2009 while working as a private investigator, Edwards helped develop securities fraud evidence on behalf of investors that eventually became part of key Securities and Exchange Commission charges involving Charles Schwab's $1.3 billion bond mutual fund that resulted in a $119 million fine and restitution order for investors.

As a reporter, Edwards is recognized for her dogged use of public records and for securing and analyzing large-scale data sets to tease out investigative findings that would be impossible to uncover by hand. At the Naples Daily News, Edwards analyzed more than 100,000 real estate sales transactions and warned about the effects of real estate flipping on soaring home costs in an investigation that pre-dated the housing market crash. Another of her investigations exposed weak efforts to enforce Florida’s ethics laws spanning 20 years.  A four-year public corruption investigation by Edwards at the Naples Daily News ultimately led to the appointment of a special prosecutor and the arrests of 10 local elected officials, including three county commissioners and the county manager, and developers on influence peddling charges.

About Watchdog City: Founded by independent journalists, Watchdog City's marketplace creates a system that allows individual journalists to sell their stories directly to the public. Participating Watchdog City Press journalists distinguish themselves by pledging to uphold standards of journalistic integrity that preserve independence and maintain credibility. Thousands of reporters have lost their jobs or left journalism in recent years and the result is fewer eyes on the public's business. Watchdog City provides you with a way to find stories that big corporate media outlets aren't covering. You decide if these Watchdog City journalists are successful by buying their stories and evaluating their work for other news consumers. You help protect journalism's core values by buying from Watchdog City Press journalists who pledge to uphold standards of journalistic integrity.

Reporting by Gina Voss Edwards
Editing by Cathy Zollo
Word Count: 5,600

People, companies and organizations mentioned in this story: Securities and Exchange Commission, SEC; Carlo V. di Florio, director of Office of Compliance Inspections and Examinations; Lisa Lindsley, director of Capital Strategies for the American Federation of State, County, and Municipal Employees; AFSCME, Private Equity Growth Capital Council, Steve Judge, President and CEO of PEGCC; Kohlberg, Kravis & Roberts Co.; KKR; George Roberts, co-founder of KKR;  Leon Black, founder of Apollo Global Management,; The Scream; Edvard Munch; Stephen Schwarzman, founder of The Blackstone Group; Mitt Romney; Bain Capital; Barack Obama; Dollar General; Eileen Appelbaum, senior economist at the Center for Economic and Policy Research; Mervyn’s department store; teacher retirement pension funds for Michigan and Pennsylvania and pension funds for public employees in Washington, Delaware, Pennsylvania, Indiana and Oregon; police and firefighter pension funds in Colorado, Iowa and Oklahoma; teacher pension funds in California, Texas and Louisiana; and general public employee pension funds in New Mexico, California, Iowa, Montana, Kentucky, Wisconsin, South Dakota, Massachusetts, Utah, Louisiana, Mississippi and New York; Government Accountability Office; GAO; Ludovic Phalippou, finance professor at Oxford University; Martjin Cremers, finance professor at University of Notre Dame; Keith Brainard, research director for the National Association of State Retirement Administrators; Wisconsin’s pension fund; New York City’s pension fund; Dennis MacKee, spokesman for Florida’s pension fund; Republican State Rep. Mike Fasano, R-New Port Richey.

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Carlo di Florio
Lisa Lindsley
Leon Black
Stephen Schwarzman
Eileen Appelbaum
Ludovic Phalippou
Mike Fasano
Original illustration by J. Lancaster for Watchdog City Press
Martijn Cremers
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