President Abraham Lincoln was known for his honesty and integrity, but today, Illinois, the Land of Lincoln, is suffering from a spate of pension scandals that has its leaders calling for reform.
The governor of Illinois late last month proposed a host of reforms for the state’s embattled pension systems after the indictment of a former pension board member and as a grand jury continues to look into large payments made to a placement agent doing business with that same state pension.
The reforms, announced by Gov. Rod Blagojevich, would eliminate contingency fees paid to placement agents and require board of trustee members to disclose more financial information. The reforms already have the backing of some key state legislators and the support of the Illinois AFL-CIO. They would make Illinois the first state to enact several of these initiatives, according to the governor’s office.
The new rules would:
* Prohibit any contingency fees paid by money managers to placement agents for working with state pension investment boards, a first for state pension systems, according to the announcement. It would also require any such placement agents to register as investment advisors subject to oversight by the Securities and Exchange Commission.
* Bar pension systems from hiring advisors that receive revenue other than consulting fees or do business with firms that manage state pension funds, which would be a first for any state. State investment boards would be prohibited from using money managers that have had their professional licenses revoked or violated ethical standards.
* Increase fines from $1,000 to $25,000 and raise penal sentences from six months probation to two to five years in prison.
* Require all public pension boards to use competitive solicitation processes and expand existing disclosure requirements for trustees, boards, advisors and managers.
* Force public pension systems to adhere to the same 2003 state ethics laws as their governmental counterparts.
The governor’s announcement directly mentioned indictments against former trustee Stuart Levine and two attorneys. The three are accused of soliciting kickbacks totaling hundreds of thousands of dollars from PE firms seeking investment from the $34 billion pension system.
The same announcement also referenced the Carlyle Group’s payment of $4.5 million to Robert Kjellander, a lobbyist who helped Carlyle receive a $500 million investment from the Illinois Teachers’ Retirement System.