April 28, 2016
By Craig R. McCoy, Mark Fazlollah, and Joseph N. DiStefano
The candidates for Pennsylvania treasurer said Thursday that if elected, they would seek to ban the use of politically connected firms as paid middlemen to drum up public business for investment firms.
Democrat Joe Torsella was first.
“Under my administration,” he said in a statement, “the days of needing to know someone to do business with Treasury will be over.”
Asked for comment later Thursday, Otto Voit, the Republican candidate, said he also opposed the use of such marketers.
“I won’t need them. I’m not going to use them,” he said.
Torsella said he was speaking out in reaction to a report in the Inquirer and the Daily News and on Philly.com on Wednesday disclosing that former State Treasurer Rob McCord had worked undercover for the FBI and secretly taped conversations with one such middleman.
McCord, who is awaiting sentencing following his 2015 guilty plea to attempted extortion charges, wore a body wire to help federal prosecutors investigate “pay to play” allegations, according to five people familiar with the matter.
Among other conversations, the sources said, he taped discussions with businessman Richard W. Ireland, a major donor to political candidates, who is a founder of a company known as Valley Forge Investment Corp.
For years, Ireland’s company has marketed investment firms to government officials who control pension funds, tax proceeds, or other money. After the officials hire the investment firms, records show, the firms pay a hefty share of their fees back to Ireland’s company every year.
In the case of the Treasury Department, Valley Forge Investment lined up investment work for at least two firms more than a decade ago.
Valley Forge Asset Management Corp., one of the firms recommended by Ireland, was paid more than $5 million in fees during the six years McCord was treasurer. This firm in turn agreed to pay half its fees to Ireland’s company, documents show.
Ireland also marketed a Tennessee firm, Weaver Barksdale & Associates, to the Treasury Department. In the McCord years, the agency paid about $2.5 million in fees to Barksdale, state records show.
According to a 2001 agrement on file with the Treasury Department, the Tennessee firm also agreed to pay half its fees to Ireland’s company.
During those years, officials with Ireland’s business donated $125,000 to McCord’s campaigns.
Joshua Lock, Ireland’s lawyer, could not be reached for comment Thursday. In previous interviews, he has said Ireland and his company did nothing wrong. Ireland has not been charged with any crime.
In an interview Thursday, Torsella said giving politically wired companies a role in the decision-making process for hiring investment firms raised questions about whether the public was getting the best possible advisers.
While Torsella said he was not passing judgment on Ireland’s activities, he added, “We now have a fairly extensive record from around the country of these middlemen being involved in public-corruption cases.”
He said he was astonished that the marketing firms struck deals that paid them for years after their initial recommendations.
“The idea that we are paying in an ongoing way for an introduction should make taxpayers mad,” Torsella said.
As pension funds and pensioners are under stress, Torsella said, it makes no sense to keep paying such fees. He dismissed any suggestion that the fees came out out of the firms’ coffers and not the public treasury.
“Look, this is just a bad deal for taxpayers,” he said. “The idea that there are fees being paid that somehow don’t cost the taxpayers money is fantastical on the face of it.”
Across the nation, the middlemen firms go by such names as third-party marketers, marketing representatives, and placement agents.
Some officials, including the leaders of major funds in New York and California, ban firms from using them. Philadelphia’s municipal fund similarly forbids them.
They are permitted, however, by the big Pennsylvania pension funds for state employees and public-school teachers – permission that Torsella said he would seek to reverse.
Neither of those large funds will disclose the payments to the marketers.
“I am not free to report the details of the contracts,” said Pamela Hile, spokeswoman for the fund for state workers.
As for the fund for teachers, known as PSERS, its officials “do not compile a tracking list of placement agents that are being used by all of the funds,” said spokeswoman Evelyn T. Williams.
“While funds may use placement agents for introductions and marketing, PSERS’s decision to invest or not invest in a fund is based on a very complete and detailed due diligence,” she said.
Staff writer Angela Couloumbis contributed to this article.