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Parks Calls on Official to Resign

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Times Staff Writer

The chairman of the Los Angeles City Council’s budget committee called Monday on pension board vice president Shelley Smith to resign, saying the move could save city taxpayers millions of dollars.

Smith had been advised by the city attorney that either she or her husband would have to resign for her husband’s investment firm to continue handling $318 million in city pension funds. The firm decided not to seek renewal of its city contract this month.

With the pension board scheduled to meet today on the matter, Councilman Bernard C. Parks, who is also a candidate for mayor, said Smith’s refusal to quit could cost taxpayers money if the city is forced to make up from its budget any losses incurred when Dimensional Fund Advisors sells its city investments in the next 120 days.

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“In resolving the conflict between her husband’s employer and the retirement system, she chose to place her personal interest above the interest of current and retired fellow city employees,” Parks said.

Breaking her silence on the controversy, Smith said Monday she has done nothing wrong and has no plans to quit the board to which she was recently reelected by 54% of city employees.

Because Dimensional Fund Advisors hired Smith’s husband as an executive in 2001, the city attorney’s office ruled that Smith or her husband would have to resign to avoid a conflict of interest, if the firm wanted to extend its contract when it expired Oct. 14.

The firm is the best-performing money manager for the city pension fund, achieving a 50% return last year.

As a result, some city employees were disappointed when the company decided not to seek an extension of the contract.

Parks said Smith should have stepped down so the firm could continue its work for the pension fund. The fund could lose money if the investments are liquidated and placed with a firm that does not achieve as high a return on the investment, Parks said. In that case, the council would have to find funds to make up the difference.

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“She has violated her fiduciary obligations as a board member and has thrust potentially millions of dollars in liability upon the city general fund,” Parks said. “We cannot afford Ms. Smith’s self-serving vision of public service.”

Smith criticized Parks for making his concerns public without talking to her first. With her husband’s firm no longer handling the investments, Smith said, “There is no current conflict of interest, no breach of fiduciary responsibility and no negative impact to the retirement fund.”

She noted that Robert Aguallo Jr., general manager of the Los Angeles City Employees Retirement System, has said he hopes the money will be reinvested in a way that will avoid a loss. Dimensional Fund Advisors has declined to explain why it chose not to seek extension of its contract.

Some city employees have also publicly questioned whether Smith faced a conflict of interest from her husband’s income from William Mercer Co., before he went to work for Dimensional Fund Advisors.

Mercer has had a consultant contract with the city Deferred Compensation Fund since 1998, and Smith is the pension board’s delegated representative to the Board of Deferred Compensation Administration. Smith denied she has acted improperly.

“I have always recused myself from any matter whether there was a real conflict or not,” she said.

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Smith also is president of the L.A. City Attorneys Assn., an affiliate of the Service Employees International Union, Local 347, which defended her record.

“Shelley Smith has always conducted herself with the highest of integrity, acting solely in the best interests of the plan participants,” said Bob Hunt, the union’s general counsel.

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