North Carolina State Employees Pension Fund Another Victim of the Facebook Saga – And Another Purveyor of Conflicts of Interest

Exposing One Reason Public Pension Funds Don’t Do So Well

Because of a lawsuit, information was released about an investment in Facebook by the North Carolina state employee pension fund.  It is not a pretty picture, not even if it were posted on Facebook.

The state reported losing $4.1 million on its $26 million investment in the social networking company’s initial public offering in May, but the actual damage could be much larger. The state’s 618,137 remaining Facebook shares are now worth half the $38 it paid for each.

Of course the state Treasurer, Janet Cowell a Democrat, didn’t do it on her own. She had help.

A broker at the Virginia-based investment firm Sands Capital Management bought the Facebook stock for the state, the treasurer’s office acknowledged Friday after declining to name the buyer a day earlier. The investment firm is one of Facebook’s largest institutional investors, owning 11.65 million shares of the company as of June 30.

Okay, investments are risky and there is no guarantee a stock investment will make a profit.  But while a very small part of the pension fund, this whole deal has an ugly stink to it.

For example

The treasurer’s office provided a document showing the Sands Large Cap Growth fund produced returns of 3 percent for the year ending Dec. 31, and 31 percent over the three years prior.

which sounds good until one realizes these returns are far less than what one could get by just buying an index fund, with much less in fees than is paid an investment management firm.

And there is this.

The state declined to reveal how much money Sands Capital manages for the state and how much it is paid.

Yeah, just because it is a public agency handling public money doesn’t mean the public has a right to know about the details.

And there is this.

The state retirement system revealed its loss last week when it joined a class action lawsuit against Facebook and its underwriters, alleging it was misled and seeking damages.

And now the law firm chosen to represent the state is also generating questions. Bernstein Litowitz Berger and Grossmann gave Cowell’s campaign more than $75,000 since her 2008 election to the post, according to state records.

And how was the firm selected?

Cowell’s spokeswoman said officials from the treasurer’s office and state attorney general’s office reviewed proposals from six securities law firms on retainer and interviewed four before selecting Bernstein Litowitz and Labaton Sucharow, both of New York.

“It doesn’t pass muster,” said Steve Royal, a Republican certified public accountant challenging Cowell in the fall election. “They are looking for business. It’s pay to play.”

And there is this.

The questions compound other conflict-of-interest concerns raised in legal documents by a competing law firm about Cowell’s close connection to prominent N.C. Democrat Erskine Bowles, a board member at Facebook and Morgan Stanley, which is a named defendant in the state’s case.

Bowles’ wife hosted a major fundraiser for Cowell’s campaign, but he did not contribute. Cowell filed a legal document this week saying the state “is intent on zealously prosecuting this action against all viable defendants.”

Yep it smell alright, and you can smell the stink even if you don’t live in Raleigh.