SEC Charges Former Detroit Pension Officials With Influence Peddling

The Securities and Exchange Commission has charged former Detroit officials, along with an investment adviser to the city's pension funds, with participating in an influence peddling scheme.

(May 10, 2012) — The Securities and Exchange Commission has charged Detroit’s former mayor Kwame Kilpatrick with accepting perks for pension contracts.

The lawsuit also includes former city Treasurer Jeffrey Beasley and MayfieldGentry Realty Advisors, a former adviser to the city’s police and fire pension fund, alleging their involvement in a secret exchange of lavish gifts to peddle influence over the funds’ investment process.

“It is a disappointing day when pension fund trustees such as ex-Mayor Kilpatrick and others corrupt the investment process by selling out hardworking police officers, firefighters and other municipal employees for the price of a few vacations and paltry extras like concert tickets and rounds of golf,” said Robert Khuzami, Director of the SEC’s Division of Enforcement.

According to the SEC, Kilpatrick and Beasley, who were trustees to the pension funds, solicited and received $125,000 worth of private jet travel and other perks paid for by MayfieldGentry Realty Advisors LLC, an investment adviser whose CEO Chauncey Mayfield was recommending to the trustees that the pension funds invest approximately $117 million in a real estate investment trust (REIT) controlled by the firm. “Despite their fiduciary duties, neither Kilpatrick and Beasley nor Mayfield and his firm informed the boards of trustees about these trips and the conflicts of interest they presented,” a statement by the US regulator says. “The funds ultimately voted to approve the REIT investment, and MayfieldGentry received millions of dollars in management fees.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

As outlined by the regulator’s complaint, the non-business travel took place in April 2007, when MayfieldGentry paid for Kilpatrick, Beasley, and their associates to travel by private jet to Las Vegas, where they had luxury hotel accommodations, two concerts, three rounds of golf, meals, and massages. The Las Vegas trip cost more than $60,000.

In July 2007, according to the SEC, MayfieldGentry paid more than $24,000 for a private jet to take Kilpatrick, Beasley’s son and others to Tallahassee, Fla., where Kilpatrick had a second home.

Additionally, in October 2007, MayfieldGentry allegedly paid more than $34,000 for a private jet to fly Kilpatrick and his wife to and from Bermuda, and Kilpatrick’s father and his girlfriend back from Bermuda.

Read the full SEC complaint here.

(May 10, 2012) — The roughly $440 billion China Investment Corporation has stopped its purchase of government debt in Europe as concerns over continued crisis in the region persist.

As part of the sovereign wealth fund’s strategy to increase allocations to infrastructure, private equity, and emerging markets, the CIC will continue looking for new investments in Europe, Gao Xiqing, president of China Investment Corp., told Bloomberg.

Additionally, according to Gao, the CIC is eager to increase its investment in Africa. Currently, however, most projects there aren’t large enough to fit the sovereign wealth fund’s investment criteria, the news agency reported Gao as saying.

Gao’s comments follow similar comments made by Lou Jiwei, Chairman of the CIC, earlier this year, who noted that the fund was not looking to allocate in the troubled Eurozone region’s debt. “For instance, the European bonds, like the government bonds of Italy and Spain, only central banks with certain responsibilities can invest, you know, for commercial investments, it’s very difficult to make such investments for long-term investors like us,” Lou said.

For more stories like this, sign up for the CIO Alert newsletter. 

“Investment chances may lie in areas like infrastructure and industrial projects, and these projects can help economic recovery,” he added.

While default in the Eurozone is threatening institutional investors and asset managers, Jiwei has continued to expres his cautious position on continued investment in the European region, which accounted for 20.5% of the fund’s diversified equity investments at the end of 2009, according to its latest financial reports.

The statements by the two CIC heads come several months after Eurozone leaders travelled to China to ask about potential investment in the Eurozone region either by direct investment or boosting the European Financial Stability Facility (EFSF) – the fund initially meant to help bail out struggling Eurozone nations.