SLED probes pension influence report

COLUMBIA -- The head of South Carolina's State Law Enforcement Division has confirmed to The Associated Press his agency is investigating a report that investment companies were told they could improve their chances of handling state pension investment work if they paid a friend of the state treasurer.

Documents obtained by The Associated Press show two investment companies reported suspicious calls that sought payments to Mallory Factor, a friend of Treasurer Curtis Loftis.

In one case, the documents show, Factor himself is said to have made a call. In others, the names of the callers are redacted from the document obtained by the AP.

Those reports prompted the South Carolina Retirement System Investment Commission in November to ask the state attorney general for an investigation.

State Law Enforcement Division Chief Mark Keel confirmed the investigation is under way but would not provide details.

Commission Vice Chairman Reynolds Williams said the reports surfaced in November. He said businesses in New York told South Carolina officials that they were getting sales pitches for investment work involving new investments with small and mid-sized companies. Williams received documentation on the calls and asked the commission to have the reports investigated.

Commission Chairman Allen Gillespie said the pitches fall into a gray area of the law.

“There are proper ways that this can be done and there are improper ways that these types of activities are carried out,” Gillespie said.

Loftis said he does not think the sales pitches broke the law and involved a practice that is completely legal.

Factor did not respond to several messages seeking comment, left at his office and by email.

In a Nov. 21 letter obtained by the AP, the commission's lawyer, Robert Feinstein, told John McIntosh, the state's chief deputy attorney general, that the alleged statements in the phone calls “might violate federal and/or state securities laws.”

In a Dec. 7 follow-up letter, McIntosh asked Keel to investigate. In that letter, McIntosh wrote, “This office was recently contacted by the South Carolina Retirement System Investment Commission and supplied information regarding a possible `pay to play' scheme.”

Williams said he doesn't know the status of Keel's investigation and he wouldn't identify who made the calls to him about the sales pitches. He said one caller asked: “What's going on with the investment commission? I received a phone call that made it sound like in order for us to be considered to work for them, we had to pay an elected official. Is that the way they do business down there?”

South Carolina's pension investments are worth about $26.2 billion, and the system relies heavily on investment advisers. For example, about 21 percent of the money is invested in hedge funds that require close management by outside companies and that generate big fees for them.

South Carolina paid nearly $350 million in investment management fees last year.

Pay to play schemes, which have been an issue in past public corruption cases, typically require people to put up money to be considered for work. In 2010, then-New York Comptroller Alan Hevesi pleaded guilty to charges tied to getting travel, campaign contributions and other favors worth nearly $1 million related to deals with one of the world's largest government pension funds.

Williams said he asked the investment companies to document the calls. A portion of those documents were obtained by The Associated Press through two sources who agreed to provide information only on the condition that they not be identified because they weren't authorized to release them during the investigation. Names were redacted from some of the documents because of the ongoing investigation.

The documents show that in one case, a caller from a “third-party research firm” said South Carolina was looking for new investment advisers. “It was mentioned that Mallory Factor did some pro bono work for an elected official on the commission,” according to a report of the call. The caller allegedly went on to say that the commission member was not happy with the managers, so “Factor agreed to provide candidates.”

The company was told that payments to the research firm would be expected to continue for three to four years, and that Factor would be making recommendations to a panel.

In a series of calls to a second company, a caller said a referral fee was required to be on a list of companies that South Carolina would consider. The company also was told the list was narrowing and the caller said he was working with Factor, who was politically connected. That was followed by a caller who said the company “could pay a fee to get into the search.”

Finally, the company said Mallory Factor called and said that the retirement system was his client. He “said that there was a newly elected official on the board and that he had done pro bono work for him.” Factor wanted a three or four year payout for the work.

Factor, an investor who describes himself as a businessman and activist, moved to South Carolina from New York in 2006.

He has written columns for publications like Forbes and The Wall Street Journal and made frequent appearances on Fox News.

In New York, Factor ran an invitation-only “Monday Meeting” that brought together wealthy people and high-finance players in business and politics. After moving, he began a new invitation-only, off-the-record meeting in Charleston that draws from players in state and national politics and finance.

He has made his presence known in South Carolina elections as well. A review of state records since 2006 shows he's made over $15,000 in political contributions in nine races from the Statehouse to governor. On his Forbes Internet show, he talked up Loftis in his 2010 race for treasurer. At the time, Loftis had no Democratic Party opponent after defeating the GOP incumbent.

As state treasurer, Loftis is the only elected official on the investment commission. He is assigned to oversee which companies would be recommended for work with the small- to mid-sized investment classification.

When asked about the SLED investigation by The Associated Press, Loftis said he thought it was about questions he had raised about how the investment commission's former executive director spent money on travel.

He said he doubts there was any wrongdoing, despite the complaint, and said he told Gillespie as much.

“We don't have any reason to believe that that stuff happened,” Loftis said. He was taken aback by McIntosh's description of a possible “pay to play” scheme.

“I'm kind of offended that they used that term because it wasn't that. It gets real complicated in a hurry and I'm not qualified to talk about it. But it's about third-party sales agents, which are completely legal,” Loftis said. He added that Factor “is legal with all of this.”

Third-party sales agents are legal, but Gillespie said they aren't used by the commission. And Reynolds said companies doing business with the commission are required to disclose if they're making outside payments.

Gillespie doesn't know what the investigation will turn up. “This could be one of those cases where I'm not sure there's enough documentary evidence for it to lead further,” Gillespie said. Nonetheless, he said, it is clear from the calls that investment companies were ill at ease with the way they were being approached.

Reynolds said that whoever was making the calls had no connections to the investment commission, even though they were clearly saying they did. Meanwhile, Reynolds said the calls also raise questions about the board and its reputation.

“And if there are people out there talking about us as if we might be susceptible to doing things that we wouldn't do in a million years, we want that impression squashed,” Williams said.

“I'm concerned that a friend of the member of the commission may have run his mouth when he shouldn't have. But I can't go any further than that,” Williams said. “It's just suspicious as hell is all I can say.”