PBGC Accused of Lax Controls; Faces $12.9 Billion Deficit

Auditors found that PBGC, which protects workers’ benefits when a company defaults on its pension plans, suffered from a "material weakness," the accounting equivalent of an F grade.

(May 4, 2010) — The Pension Benefit Guaranty Corporation (PBGC) has been cited for lax controls, alarming key members of Congress.

As a result of the economic downturn, PBGC’s assets were strained as the number of waning US companies with pensions that needed to be rescued spiked. In December 2008, when Lehman Brothers defaulted on pensions of 22,000 employees, for example, PBGC assumed responsibility.

“PBGC did not have effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations and its operations,” Rebecca Anne Batts, the PBGC inspector general, wrote in a recent letter.

The Center for Public Integrity found, after examining hundreds of internal memos, audits, and other documents, that PBGC had misled Congress and its inspector general to believe long-term problems were settled, a potential criminal violation. Additionally, the Inspector General recently criticized the firm’s CEO Charles Millard for getting involved in negotiations for lucrative contracts with big name Wall Street bidders, including Goldman Sachs Group Inc, BlackRock Inc., and JP Morgan Chase & Co., as they were bidding for contracts to invest or manage $2.5 billion of the corporation’s money, CBS News reported.

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Created in 1974, PBGC, now running a $12.9 billion deficit, is responsible for protecting the pensions of 44 million retirees and workers in the US if their employers get into financial trouble.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

US pension funds and other shareholders have aggressively sued Goldman Sachs in the wake of SEC fraud charges, but the Oracle of Omaha defends the bank's credibility.

(May 4, 2010) — Following the Securities and Exchange Commission’s fraud charges against Goldman Sachs last month, the banking giant has been hit with a flurry of shareholder lawsuits filed by US pension funds. Warren Buffett, on the other hand, defends the banking giant.

“I haven’t seen anything in Goldman’s behavior that makes it any more subject to criticism than Wall Street generally,” Berkshire Hathaway CEO Buffett has stated. As the investment bank fights for its reputation, Buffett has declared he has no plans to sell Berkshire Hathaway’s stake in Goldman.

Meanwhile, in a recent filing with the SEC, Goldman outlined seven legal actions that shareholders have taken against the firm since the regulator’s suit in federal count in Manhattan on April 16. The private lawsuits demand compensation from the bank, action against execs, and changes to how the firm operates. Goldman said it expected to have additional litigation in the future, while calling the SEC’s allegations unfounded.

According to Financial News, the Louisiana Municipal Police Employees Retirement System (MPERS) is a plaintiff in one of the suits. The Southeastern Pennsylvania Transportation Authority and International Brotherhood of Electrical Workers Local 98 Pension Fund are co-lead plaintiffs in another. The funds claim that Goldman’s trading business has been conducted unethically and assert that the SEC charge could threaten the Wall Street firm’s reputation in the long run.

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Goldman’s Chief Executive Officer Lloyd Blankfein has been busy launching a media offensive to restore trust with investors and the public. The CEO appeared on both The Charlie Rose Show and in an interview on CNN with Fareed Zakaria to defend the bank’s reputation, saying he would resign as CEO if he thought it would help the firm’s future. Some estimate that Goldman’s legal fees could reach up to $100 million.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742