The New Jersey State AFL-CIO last week filed an 11-page complaint with the State Ethics Commission, referring to what it called “a disturbing pattern of big contributions to Christie for Governor or Republican organizations by firms handpicked to manage hundreds of millions in state pension funds.” If the union’s goal was to generate headlines that would embarrass a political foe, then the AFL-CIO did its job. If it wanted to make credible allegations of wrongdoing, then it failed miserably.
At issue are New Jersey laws that prevent that state’s public pension system from investing in certain types of funds whose managers have contributed to in-state political candidates or parties during the 24 months prior to receiving the commitment. In other words, ‘pay-to-play’ restrictions designed to prevent pension officials (and their bosses) from giving new business to political patrons.
AFL-CIO believes it has found five examples of such behavior. The problem is that at least three of them involve investment decisions made before Christie entered office. Moreover, the political contributions came years after the pension’s investments were made, and were made by individuals who don’t actually fall under the rule’s purview.
For example, the complaint cites:
Gleacher and Company, which manages such monies even though William Sapoch, who is listed as an investment management professional with the firm, gave $3,800 in December 2012 to Christie for Governor.
According to state investment records, the only state pension monies managed by Gleacher & Co. relate to Gleacher Mezzanine Fund II, a private debt fund that was raised back in 2006. Hard to imagine how a political donation six years later would have impacted that decision (which was made during the Corzine administration). It also is worth noting that William Sapoch appears to have been a financial advisor with Gleacher who never worked on the mezzanine business — a business that actually spun out from Gleacher (and renamed itself Arrowhead Mezzanine) back in 2010.
Here’s another:
JP Morgan, a $3,800 contribution from Robert F. Cummings, listed as the vice chairman for Investment Banking, in January 2013 to Christie for Governor and a $15,000 to the State Republican Party by Greg Onken, who is listed as a managing director and financial advisor.
New Jersey has multiple investments in JP Morgan-related securities but most of it is in publicly-traded equities and bonds that do not fall under the New Jersey statute (because these are passive holdings that do not involve the bank “recommending investment management decisions”). The only exception is a venture capital fund investment called JP Morgan Venture Capital III, which was raised in 2006 and was not managed by either of the aforementioned JP Morgan professionals (Cummings didn’t even join JPMorgan until late 2010, while Onken is a private wealth manager).
The one AFL-CIO example that does hold water is a 2011 investment in a venture capital fund managed by General Catalyst Partners, which had a part-timer who had made a $10,000 contribution to the NJ Republican State Committee just months earlier. That deal has been under investigation since this past May, while Fortune reported earlier today that the New Jersey Division of Investments has sold its interest in the fund. AFL-CIO also mentions State Street, in which New Jersey appears to have briefly invested in via a money market fund. It is unclear when that investment began and ended.
But it gets worse. Here is what AFL-CIO wrote in its press release announcing the complaint:
Many of the state’s relationships with Wall Street firms coincide with generous political contributions, even though state ethics rules require a two-year lag before a donor can be a pension investor. For example, an employee of the Blackstone Group donated $10,000 to the NJ Republican State Committee in 2011, the same year new investment business was being proposed for the firm.
The Blackstone employee being referred to here in Anthony Grillo, who actually left the firm back in 2005 (according to both a press release and contemporaneous media coverage). This example was not included in the actual complaint, but remains in the press release posted on the union’s website.
In addition to in-state contributions, AFL-CIO also suggests that several hedge fund managers violated New Jersey law by committing to national political parties. Except that they didn’t.
AFL-CIO seems to be relying on a March 2014 rules change that specifically exempted contributions to national candidates or parties from pay-to-play restrictions, whereas the earlier law was vague on the issue. What the union seems to have missed, however, was a 2006 opinion from the NJ State Investment Council (then under Democratic Party control) that says, in part: “Federal contributions were beyond the intended scope of the Council’s regulations. Therefore, it was clarified that the Council’s policy is limited to state committees.”
Finally there is the issue of Bob Grady, the Christie-appointed NJ State Investment Council chairman who once used to work for The Carlyle Group (a giant private equity firm that received investments from New Jersey both before and after Christie took office). The AFL-CIO contents that Grady stands to profit from investments made in Carlyle funds after he left the firm in 2009 — a specious claim we debunked earlier this year.
The AFl-CIO has not yet responded to a request for comment on the issue of investment decision timing vs. political contribution timing. It also is worth noting that the union has a representative serving on the NJ State Investment Committee.
Sign up for Dan’s daily newsletter on deals and dealmakers: Get Term Sheet
