The following editorial appeared Tuesday in The (Columbia) State:
We have no idea whether the State Retirement System’s lawsuit against the Bank of New York Mellon Corp. was a strong case that was badly bungled or a frivolous case that never should have been brought, but we know this: Nothing that has been made public about the settlement is worth bragging about. Nothing that has made public suggests that the State Retirement System – which is to say, current or future state retirees – benefitted.
At best – at best – the settlement that state Treasurer Curtis Loftis is touting was the avoidance of a loss, and that only if it was a bad case that Mr. Loftis’ predecessor never should have filed and that our state would have ended up spending an outrageous amount of money to pursue.
At worst, well at worst this thing just stinks to high heaven.
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A handful of lawyers – including a friend of Mr. Loftis’ whom he brought in for no apparent reason other than that he wanted to – will benefit nicely, pocketing $9 million on a settlement that Mr. Loftis claims is worth more than $100 million but that The Associated Press reports can only be certain to bring $25 million. Under the attorney agreement signed by then-Treasurer Converse Chellis, attorneys were to receive only $4.5 million.
The other beneficiary is Mr. Loftis, who gets $5 million for his office and, if we’re gullible enough to believe his spin, bragging rights. If we’re really gullible.
But the $27 billion retirement fund gets just $20 million toward the $120 million it says it lost from investments in sub-prime mortgages, bankrupt Lehman Brothers and other bad risks that the lawsuit alleged violated a state contract that called for conservative, short-term securities purchases. And the fund gets saddled with a long-term relationship with a company that our state felt the need to take to court over its investment practices.
Mr. Loftis says the settlement is worth more than $100 million, but the AP reports that after weeks of trying to pin him down, the only solid numbers he provided were the $25 million in payments from the bank and $1.5 million worth of training that the Retirement System Investment Commission says is useless. The settlement does increase the state’s profit share on securities from 85 percent to 90 percent, but it creates additional fees that commissioners say will cost much more than other arrangements would.
The only way the state would realize any additional gains is if Mr. Loftis convinces the commission to invest even more money with the bank and an affiliate. And all signs indicate that’s not going to happen because the professionals on the Investment Commission – the treasurer is the only member who is not required to have investment experience – don’t trust Mr. Loftis’ judgment or, for that matter, Mr. Loftis.
Some of the competing claims are difficult to sort out, but here’s a pretty safe rule of thumb: If a settlement forces you to do business with someone you sued, then you lost that lawsuit. This settlement requires the state to continue to invest $40 billion – that’s with a “B” – with the bank for another 10 years.