RALEIGH, N.C. — The State Employees Association of North Carolina and Benchmark Financial Services announced today the filing of a complaint with the U.S. Securities and Exchange Commission’s Office of the Whistleblower after a forensic investigation found $30 billion (35 percent) unaccounted for in North Carolina’s Teachers’ and State Employees’ Retirement System (TSERS).

In announcing the filing of the complaint, SEANC and Benchmark released a forensic report detailing a number of potential violations of state and federal law, as well as other concerns regarding the management of the $87 billion pension fund by State Treasurer Janet Cowell.

The investigation, led by national pension expert Edward Siedle, found the Treasurer’s office unable to account for $30 billion, hundreds of millions of dollars in fees paid to money managers not previously reported to the public or the N.C. General Assembly, and what appear to be several violations of state and federal securities law by the Treasurer’s office.

The most egregious of these problems, of course, is the Treasurer’s inability to account for $30 billion of the $87 billion pension fund.

“Nobody has any idea where that $30 billion has gone. It’s all in secret accounts,” Siedle said.

It’s a problem, SEANC Executive Director Dana Cope said, that can only be solved through an investigation by the SEC and structural and reporting reforms to the retirement system by the General Assembly.

“This report shows the dangers of the sole fiduciary governance model for the state pension plan and the need for reform,” Cope said. “Not only can State Treasurer Janet Cowell not account for $30 billion, she is refusing to disclose hundreds of millions in fees, as required by law, and her high-risk investment experiments are hurting North Carolina taxpayers, as well as employees and retirees. SEANC is calling on the General Assembly to take up legislation to reform this system. SEANC also is calling for a full audit and an SEC investigation into Cowell’s management of this $87 billion fund.”

To review SEANC’s public records requests and all documents received from the State Treasurer’s office, click here.

To review the full 147-page forensic investigation report by Benchmark, click here.

Below are the report's highlights, as well as recommendations for actions to better protect taxpayer dollars and the futures of state employees and retirees.

HIGHLIGHTS:
• $30 Billion in Secret Accounts: In an unprecedented decision, Cowell has entered into agreements with a number of Wall Street money managers to keep secret from all stakeholders, including the General Assembly, where $30 billion (35 percent) of pension assets are invested.
• Pension Losses of $6.8 Billion: Cowell’s political manipulation of the state pension plan and
self-described “experiment” with high-risk alternative funds, including real estate, hedge funds and
asset-backed securities has cost North Carolina $6.8 billion.
• Total Fees to Wall Street Skyrocket to $1 Billion: Benchmark estimates total fees paid to Wall Street money managers have risen 1,000 percent to approximately $1 billion — at least half of which
($500 million) have not been properly reported by Cowell to the General Assembly and the public.
• Treasurer’s Reports Violate State Law: North Carolina law mandates full disclosure of all direct and indirect investment management and placement agent fees in the Treasurer’s Government Operations reports to the General Assembly. Cowell has failed to make these disclosures.
• Potential for Corruption: Pay-for-play has long been a problem with the state’s pension system for more than a decade and under Cowell the potential for these quid-pro-quo relationships has grown.

RECOMMENDATIONS:
• Eliminate the Flawed Sole Fiduciary Governance Structure: There is broad national consensus that the sole fiduciary governance structure for a state pension makes no sense. The current structure of the state treasurer as the state pension’s sole fiduciary should be replaced with fully transparent board with members from the General Assembly, investment experts, state employees and state retirees.
• Formally and Completely Audit TSERS: The nation’s seventh largest public pension has no
audited financials. An audit of TSERS by State Auditor Beth Wood, which would improve oversight
and management of pension investments, reveal deficiencies (including fraud and other malfeasance), and produce savings, is decades overdue.
• End the use of Placement Agents: TSERS is an $87 billion fund. It should not be secretly squandering $180 million in avoidable placement agent fees for conflicted and unreliable investment advice.
• End the North Carolina Nexus Investment Program: TSERS local investments through private
securities firms and in private corporations based in North Carolina are rife with opportunities for
political influence-peddling and dubious economic benefit. Further investigation is warranted.
• Request SEC Intervention: An investigation by the SEC is recommended to look into potential fiduciary breaches and violations of law by Cowell and the Wall Street money managers being paid by TSERS.

Benchmark Financial Services Inc. has pioneered the emerging field of forensic investigations of pensions and has conducted investigations worldwide involving in excess of $1 trillion. Benchmark’s founder, Edward “Ted” Siedle, is a former SEC attorney and nationally recognized leading authority on pension wrongdoing. Siedle writes a “Financial Watchdog” column for Forbes.com.

SEANC, SEIU Local 2008, the South’s leading state employee association with 55,000 members, hired Benchmark to conduct a comprehensive forensic review of TSERS. To keep up on SEANC’s daily news, follow us on Twitter @SEANC2008 and “like” us on Facebook at facebook.com/SEANC.Local2008.