Pena Says He Wants Ex-Firm to Drop His Name

Transportation Secretary Federico Pena, faced with new questions about how the investment management firm he founded is pursuing clients in the transportation industry, says he wants his former partners to remove his name from the business.

In written comments to The Times, Pena also said for the first time that he “has no intention of returning” to the firm, Pena Investment Advisors, when his government service ends. Pena relinquished his position as president and chief executive officer of the business when he joined President Clinton’s Cabinet in January, 1993.

“I have written the company asking it to change the name,” Pena said. “The company is considering the matter.” In an interview Friday, Pena added, “I hope that they do. I think frankly that would be best for the firm and for me, in order to just avoid any kind of question.” An aide to Pena said Friday night that he believes the firm will agree to make a name change.

Pena’s comments came in response to questions from The Times regarding the most recent transportation-related client obtained by Pena Investment Advisors, which manages public and private pension funds and trusts. Records and interviews show that the investment firm last year was selected to manage $10 million in pension funds for the Chrysler Corp.--whose cars, trucks and minivans are subject to extensive regulation by Pena’s department.

A Chrysler pension executive said Pena Investment Advisors was hired as part of the company’s effort to retain “the best and the brightest” of minority-owned or female-owned money management firms. Representatives of Pena Investment Advisors, in Denver, declined to comment.

L.A. Contract

The Times reported in February that 19 days after Pena took office Pena Investment Advisors won a no-bid contract to manage $5 million in pension funds for the Los Angeles County transit authority, which relies heavily on federal funding controlled in part by the transportation secretary.

The Justice Department, without identifying which circumstances of the Los Angeles contract award it examined, announced in March that a preliminary review “found no specific and credible evidence of any violation of federal law” by Pena.

Pena Investment Advisors won another transportation-related client last year without competitive bidding--the pension fund of the San Antonio-area bus authority. The hiring and officials’ decision last September to double to $6 million the funds to be managed by the Pena firm is being examined in an internal audit, according to T.J. Connolly, who resigned last month as chairman of the authority.

“I really think that some people on our side thought that by doing this [hiring the Pena firm], we would catch the secretary’s attention and curry the secretary’s favor,” Connolly said, noting that San Antonio is seeking federal funds for a proposed downtown bus terminal. Connolly said he has seen no indication that Secretary Pena encouraged the hiring or has given San Antonio preferential treatment.

Of the $97 million that Pena Investment Advisors was managing in late 1994, the three transportation-related clients were providing $21 million, or more than one-fifth, according to records. The firm gained each of those clients after Pena took federal office.

Question of Regulation

Pena Investment Advisors’ relationships with the three transportation-sector clients raises questions about the atmosphere in which the Transportation Department regulates those interests, according to ethics specialists.

Michael S. Josephson, whose Los Angeles-based ethics institute advises federal and state agencies, said that Pena should take definitive steps to eliminate any perception that his name is being marketed to win clients whom he regulates.

Geoffrey C. Hazard Jr., who heads the American Law Institute in Philadelphia, said that Pena’s allowing his former partners to use his name after he left the firm, plus his statements over two years leaving open the possibility he could rejoin them, undermined his department’s handling of sensitive regulatory decisions involving the firm’s clients.

“Why would they [Pena’s original partners] keep that name if it didn’t make a difference?” Hazard said. “After all, you could rename it ‘Southwest Investment Partners.’ ”

Pena, a lawyer by training, founded Pena Investment Advisors in late 1991, after serving eight years as mayor of Denver. His role was to attract prospective clients. When Pena took federal office, he sold his interest in the firm and pledged to avoid participating for one year “in any particular matter having a direct and predictable effect” on Pena Investment Advisors.

Earlier this year he defended as unbiased his decisions affecting the Los Angeles County transit authority’s multibillion-dollar subway project. And, he said that because he sold his stake in Pena Investment Advisors, there is no reason for him to avoid making decisions affecting Chrysler.

“Ethics advisers inform me that there are no grounds to recuse myself from matters affecting Chrysler,” Pena said. “The illogical result would be that any company wanting to have me abstain from a particular policy decision would simply provide assets to my former firm to manage.”

Josephson, however, said Pena’s request that his former firm alter its name “expresses to me that he must understand the impropriety or he wouldn’t have asked them to remove the name.”

Josephson added: “It ought to be more than a request. It ought to be a formal demand. . . . The kind of conflict of interest that exists here . . . is far too great to allow this to be determined by a group of people who have a financial interest in maintaining the name.”

Josephson noted that Pena’s latest statements leave him the option to change his “intention” and return to the firm.

Ethics Advisers

Pena, in his written comments and in interviews, said he has followed the law and the advice of his ethics advisers. Pena said he did not know if he had legal standing to demand that his name be removed from his former firm.

“I strongly believe I’ve done everything humanly possible and ethically that has been asked of me to divest myself from the firm,” Pena said on Friday. “And yet because of the firm doing business with various groups around the country, these questions are now being raised about me.”

Asked why he had allowed his former partners to continue using his name after he became transportation secretary, Pena said in an interview in February: “The partners asked if the name could be continued, so they would have at least the stability of the name. . . . And I asked the lawyers about that in my vetting process [in January, 1993]. And I said, ‘Is that a permissible thing to do?’ They said, ‘That’s fine. They could continue to use the name. But make sure that you have sold all your stock and you have no interest.’ ”

Asked in the interview five months ago whether he would return to the firm upon leaving office, Pena said: “The answer is, I don’t know. I have no idea.”

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The investment firm’s relationship with Chrysler has developed during the same period that Pena has overseen policy decisions that can affect public safety--with millions of dollars at stake for Chrysler.

Larry L. Valencia, a former executive of Pena Investment Advisors and one of its founding partners, said that in his view, Chrysler may have thought it could gain favor with the transportation secretary by using the firm.

“If Chrysler looked at it and said: ‘Well, possibly we’ll get some benefit from the secretary out of this’--that’s certainly possible,” Valencia said in an interview. But Valencia also said he and his colleagues did not encourage any client to make that assumption. Valencia left the Pena firm in June, 1994.

Chrysler Investigations

During the period Chrysler formed a relationship with Pena Investment Advisors, transportation officials have conducted two investigations with ramifications for Chrysler and for the users of its minivans.

One investigation, regarding the performance of the vans’ anti-lock brakes, was broadened in June to include Chrysler-made sedans. The other, more controversial investigation culminated this spring with an agreement favorable to Chrysler, outraging safety activists.

That case involved allegations that rear-hatch latches on Chrysler minivans had been a factor in 32 deaths and scores of injuries in traffic accidents since 1984. Rather than declaring the latches defective or seeking a safety recall, the Transportation Department agreed to a remedy preferred by the company: Chrysler announced on March 27 a voluntary “service action” that would give owners of 4 million minivans the opportunity to replace their rear latches if they chose to.

The agreement allowed the company to conduct a national advertising campaign stating that the government had not found the latches to be unsafe. It also is expected to provide Chrysler a savings in replacement costs because fewer car owners respond to voluntary service offers than mandatory safety recalls, according to experts. The company maintains that its vans are safe.

Transportation activists, who had not been aware of Chrysler’s association with the Pena-founded firm, said they found the relationship disturbing.

“It’s chilling,” said Ralph Hoar, an Arlington, Va., safety consultant who is working on behalf of minivan accident victims. “And there is at least an appearance of impropriety.”

Federal law assigns to the secretary of transportation the responsibility for carrying out vehicle-safety investigations; Pena and another transportation official said that the Chrysler investigation had been handled mostly by the department’s staff.

Limited Involvement

“The secretary’s involvement has been limited to a few briefings intended to inform him of significant developments,” said Philip R. Recht, deputy administrator of the department’s highway safety agency. “ . . . While it hardly would have been improper to do so, the secretary at no time was asked to approve, disapprove or otherwise review any action taken.”

Officials said they will monitor Chrysler’s latch-replacement campaign.

Chrysler agreed to hire Pena Investment Advisors last year after meeting with and questioning a handful of prospective money managers at the auto maker’s offices in Highland Park, Mich., according to people involved.

A Chrysler pension executive, Russell P. Flynn, said the hiring of the Pena firm resulted from a “competitive” selection process. Depending on the firm’s performance, Flynn said, Chrysler would consider allocating it more money to manage from the auto maker’s $9.9-billion pension fund.

Amy Stamberg, a consultant who oversees the performance of Pena Investment Advisors on Chrysler’s behalf, said she presented Chrysler with a list of qualified minority-owned firms. “We gave them a list of six managers and said, ‘We’re comfortable with any of these six you want to select.’ ” Stamberg said Chrysler selected Pena Investment Advisors and one other firm from the list.

Generally, Stamberg said, she is pleased with the Pena firm’s performance. However, she said two developments have given her “some fundamental reservations.”

One of Pena Investment Advisors’ original principals, who helped shape the investment strategy reviewed last year by Chrysler, has resigned, leaving the firm with one portfolio manager. Second, Pena Investment Advisors has adjusted its investing “style,” Stamberg said, from picking stocks of larger firms to those of some smaller-capitalized companies.

Such changes in a money manager’s personnel and investing style are commonly considered grounds for terminating the firm’s contract, according to Ian D. Lanoff, a pension law expert who served as an assistant labor secretary under President Jimmy Carter.

Chrysler’s Flynn, while emphasizing that he relies on advice from Stamberg’s consulting firm, said he is concerned about the departure of the key Pena executive. Overall, he said, Chrysler is satisfied with the Pena firm.