By WILLIAM PETROSKI • email@example.com • May 29, 2009
Hopes are dimming for a full recovery of $291 million in frozen Iowa pension fund investments that are tangled in a massive federal securities fraud case involving two prominent money managers.
Documents filed in U.S. District Court in New York this week show the remaining assets found by a court-appointed receiver represent only about 60 percent of all investor claims filed against Westridge Capital Management of California and its related businesses.
The Iowa Public Employees' Retirement System has been waiting for news on how much money it might recover. The pension fund had invested a total of $500 million with Westridge Capital Management in 2007 and 2008.
Only about $35 million of the Iowa pension money has been recovered so far, although significant losses were expected, regardless of the alleged securities fraud, because of a downturn in financial markets, officials said.
The remaining $291 million of IPERS's investment has been frozen by the federal courts since authorities uncovered the alleged investment scam in February. The $291 million represents a small percentage of IPERS's overall investment portfolio, which totaled about $16.9 billion in mid-March, down from $22.3 billion last June.
IPERS, which has 312,000 members, is Iowa's largest public employee pension fund. Monthly pension payments haven't been affected by the alleged investment scam.
The identified assets for Westridge Capital Management and related parties in the latest federal court filing are estimated at about $893 million, while overall claims are approximately $1.5 billion. Those claims have been submitted by IPERS and about 25 other institutional investors, including the University of Pittsburgh, North Dakota State Investment Council and San Diego County Employees' Retirement Association.
"Based on all the information available to the receiver, it appears there will be a shortfall of approximately $600 million," said the preliminary report by Robb Evans & Associates LLC of Los Angeles, the temporary receiver.
State Treasurer Michael Fitzgerald, an IPERS Investment Board member, said Thursday he remains "very, very concerned" about possible Iowa pension fund losses from its remaining $291 million in Westridge investments.
"My reaction is that 60 percent is better than nothing, but still, losing 40 percent is a bite," Fitzgerald said. "It's outrageous when you see people who are so selfish and greedy that they will take money like this."
The investment firm's two principals, Stephen Walsh, 64, of Sands Point, N.Y., and Paul Greenwood, 62, of North Salem, N.Y., are accused by federal authorities of stealing at least $553 million from investors to support lavish lifestyles that included expensive homes, a horse farm, rare books and 1,348 teddy bears that cost more than $3 million. The alleged scam was discovered earlier this year during an audit by the National Futures Association.
According to a federal complaint, Greenwood and Walsh manufactured promissory notes to present the appearance that investment money was loaned to them.
R. David Gary, a spokesman for the Commodity Futures Trading Commission in Washington, said Thursday the prosecutions of Walsh and Greenwood are on a parallel track with civil court proceedings aimed at recovering investor assets, but there is no timetable for wrapping up the cases.
Donna Mueller, IPERS chief executive officer, and Deputy Iowa Attorney General Jeffrey Thompson sent a memo to the IPERS Investment Board on Thursday. It said the receiver will submit a proposed "claims verification process" to the court in late June. Recommendations regarding the distribution of assets are expected sometime thereafter, they said.
"We are pleased that the receiver has recovered substantial assets, and we must await the plan of distribution to determine the extent of our losses," the IPERS memo said.
The market value of IPERS's Westridge account was estimated at $339 million on Jan. 31, state officials said. This included about $48 million in IPERS assets held by Westridge and about $291 million held by WG Trading, an entity owned and controlled by Walsh and Greenwood. IPERS since has recovered $35 million of the $48 million from Westridge, with about $13 million lost because of a drop in the stock market, officials said.
State Sen. Steve Kettering, a Lake View Republican and a banker who is a nonvoting IPERS Board member, said Thursday he will encourage a re-evaluation of pension system investment policies. "It seems to me that any time you have an occurrence like this you need to reassess. That doesn't mean anything was done wrong or improperly, but you should take a look at it and make a determination going forward of your process," Kettering said.
LOL WHUT?? Seriously though, my mom's a state employee about seven years from retirement. She's planned it out to the nth degree, so I'm hoping she's still good to retire when she wants to. Plus with all the Madoffs of the world, don't know if these two slimy slugs had gotten much press.