Pension board member directed funds to a firm with ties to his, documents show
An appointee of Los Angeles Mayor Antonio Villaraigosa voted two years ago to direct millions in public pension dollars to a company that invested in his own private equity fund, according to documents obtained by The Times.
Elliott Broidy, chairman of Markstone Capital Partners, served until May on the Fire and Police Pensions board, which provides benefits to the city’s retired police officers and firefighters.
Real estate company CIM Group invested $500,000 in Markstone’s private equity fund in 2004, according to an e-mail to the city’s pension agency. Three years later, Broidy voted with his colleagues on the pension board to commit up to $30 million to CIM’s Fund III, which focuses on real estate.
The Securities and Exchange Commission asked Broidy in May if he had done business with any of the companies that have come before his board. In court documents filed two months ago, two SEC lawyers said they were trying to determine whether Broidy or others “engaged in a fraudulent scheme to extract kickbacks from investment advisors and/or their intermediaries in exchange for supporting proposed California public pension fund investments.”
The SEC is one of several government agencies looking at investment decisions by public pension systems in California and elsewhere, which have been battered by investment losses in recent years.
In Los Angeles, officials familiar with the state’s conflict-of-interest law remain unclear as to whether Broidy needed to recuse himself from the 2007 vote. CIM’s investment in Markstone was comparatively small, representing only a tiny fraction of the $800-million fund.
Nevertheless, the city’s Fire and Police Pensions board went behind closed doors Thursday -- on the advice of its lawyer -- to cast a new vote ratifying its 2-year-old decision to invest in CIM’s Fund III. Assistant City Atty. Alan Manning would not explain the reason for the vote, which effectively removes Broidy from the decision.
Broidy is not the only board member to have had a financial relationship with CIM Group. The Times reported in May that Sean Harrigan, another Villaraigosa appointee under scrutiny from the SEC, was renting an apartment from CIM Group in downtown Los Angeles in 2005 when he voted to invest $30 million in a CIM real estate investment trust.
On Thursday, the pension board also took a new vote on that 4-year-old investment decision. The vote was also cast behind closed doors.
Broidy spokesman Jim McCarthy had no comment, saying his client was in transit.
Harrigan attorney Mark Byrne said he was unaware of Thursday’s vote but defended his client’s handling of the CIM matter in 2005. “Sean Harrigan never had any conflict that he did not recuse himself on,” he said.
Board President George Aliano would not discuss the closed-door deliberations but said he was unhappy that CIM had not disclosed its ties to Markstone and Harrigan at the time of their votes. Aliano said he believes that Harrigan and Broidy had an obligation to disclose their CIM ties and recuse themselves from voting to avoid the perception that extraneous deals could influence a vote.
“There shouldn’t be any personal side deals or anything like that,” he said.
An SEC spokeswoman declined to discuss the matter. But a subpoena issued in August said the agency wanted Broidy to identify any communications he had with several companies, including Arvco Capital Research, which is the subject of a review by the California Public Employees’ Retirement System, or CalPERS.
Arvco, headed by former CalPERS board member Alfred J. R. Villalobos, received at least $70 million in fees from firms that relied on him to pitch their investment products to CalPERS, including CIM.
The SEC investigation into California public pension funds comes as the Fire and Police Pensions system is calculating the cost of last year’s investment losses. City financial analysts expect that losses from two public pension funds will add more than $120 million to next year’s budget shortfall.
The federal investigation into California pension funds began earlier this year, serving at least partly as an offshoot of probes into allegations of kickbacks in the New York State Common Retirement Fund.
The SEC sent letters in April to Broidy and Harrigan asking them to discuss any communications with four firms, at least three of which figured into the New York investigation.
Harrigan and Broidy stepped down as volunteer pension board members in May, saying they viewed the inquiry as a distraction from their public duties. Both said they had committed no wrongdoing.
Two months later, city officials wrote to CIM Group to ask whether it had a financial relationship with Broidy’s company. A CIM Group official sent an e-mail on Aug. 4 confirming the company’s 2004 investment.
In her e-mail, Elaine Wong, CIM’s vice president of investor relations, said that one of her company’s founding principals knew Broidy socially as early as 2003 and was interested in the fact that Markstone invests in Israel. Wong also said the Fire and Police Pensions system had begun investing in CIM before Broidy joined the board.
That information was incorrect. Broidy was appointed to the board by former Mayor James K. Hahn in 2002 -- two years before CIM invested in Markstone. He was reappointed by Villaraigosa four years later.
Broidy was absent for his board’s 2005 vote on CIM but was part of the board’s unanimous vote in favor of CIM two years later.
CIM Group said it remains an investor in Markstone but would not say whether it was paying management fees to Broidy at the time of the pensions board’s 2007 vote.