Probe of Petrobras Turns to Pension Fund

Brazil

An investigation into corruption at Petrobras, Brazil’s state-run oil company, has taken a new turn: investigators are now looking into the company’s pension fund, although details are unknown.

From Reuters:

Brazil’s state-run oil company Petrobras on Monday said a growing corruption scandal may implicate its employee pension fund and has led to a freeze on payments to 23 contractors allegedly involved in the scheme.

Petros, the 66 billion real ($24 billion) employee-pension fund of Petroleo Brasileiro SA, as Petrobras is formally known, was singled out by an internal investigation, Petrobras said in a statement.

The law firms that are conducting the internal investigation “have found possible links to the facts that have been investigated” regarding the pension fund, according to the statement.

It did not give details of any possible links.

The investigation was launched after Brazilian prosecutors alleged that Petrobras executives conspired with construction companies to inflate the cost of contracts and then kick back proceeds to executives, politicians and political parties as bribes and campaign contributions.

Last month, Petrobras was fined by Brazil’s security regulator for violating rules regarding the election of board members of Brazilian companies in which the pension fund is invested.

State Street Being Probed by SEC, Department of Justice For Possible Misconduct While Soliciting Pension Business

SEC Building

An interesting piece of information was tucked away in a new State Street Corp. regulatory filing.

In an SEC filing filed Monday, State Street said it was being subpoenaed by the SEC and the Department of Justice for information related to the way the bank solicits business from public pension funds.

State Street admits in the filing that “in at least one instance” a consultant employed by the firm made political contributions while bidding for pension business.

From the filing:

We are responding to subpoenas from the Department of Justice and the SEC for information regarding our solicitation of asset servicing business of public retirement plans. We have retained counsel to conduct a review of these matters, including our use of consultants and lobbyists in our solicitation of business of public retirement plans and, in at least one instance, political contributions by one of our consultants during and after a public bidding process. While we are unable to predict the outcome of these matters, adverse outcomes could have a material adverse effect on our business and reputation.

Depending on the nature of the political contribution, the action could violate SEC pay-to-play rules.

Under the SEC’s current rules, investment advisors can’t make donations to politicians that have any influence—direct or indirect—over the hiring of investment firms.

Specifics of Rule 206 (4)-5, as explained by law firm Bracewell & Giuliani:

Rule 206 (4)-5, which was adopted in 2010, prohibits investment advisers from providing compensatory advisory services to a government client for a period of two years following a campaign contribution from the firm, or from defined investment advisers, to any government officials, or political candidates in a position to influence the selection or retention of advisers to manage public pension funds or other government client assets. Some de minimus contributions are permitted, topping out at $350 if the contributor is eligible to vote for the candidate, and the contribution is from the person’s personal funds.

Businessweek reached a State Street spokewoman for comment:

“We are cooperating with governmental authorities and have retained counsel to conduct an internal review of these matters,” said Alicia Curran Sweeney, a spokeswoman for State Street, while declining to comment further on confidential discussions with regulators.

Earlier this year, investment firm TL Ventures was busted when an employee was found to have made a political donation to Pennsylvania’s governor while the firm was working with the Philadelphia Board of Pensions. The consequences: the firm has to give up over $250,000 in fees it earned from the work, and pay a $35,000 fine.

New York Comptroller DiNapoli Touts Pension Reforms in Letter

Thomas P. DiNapoli

New York State Comptroller Thomas P. DiNapoli is likely to win re-election to his post without much trouble, according to recent polls.

But amidst questions about conflicts of interest in the New Jersey pension system, DiNapoli seized an opportunity to tout his own pension reform measures in a letter to the editor of the Times-Union:

A recent commentary rightfully condemned the culture of “pay to play” in which politically connected financial executives gain access to public pension money in exchange for political campaign contributions (“Public pensions, politics don’t mix,” Oct. 3).

After I was appointed state comptroller, my top priority was to restore the office’s reputation after it was badly tarnished by a scandal based on this corrupt practice. We took immediate steps to set new standards and controls to codify ethics, transparency and accountability.

In time, we have returned the office’s focus to where it should be – on the investments and performance of the New York State Common Retirement Fund. This was accomplished by: Banning the involvement of placement agents, paid intermediaries and registered lobbyists in investments; issuing an executive order and pressing the U.S. Securities and Exchange Commission to prohibit “pay-to-play” practices; and expanding vetting and approval of all investment decisions.

I’m proud to say the latest independent review of the pension fund by Funston Advisory Services found it operates with an industry-leading level of transparency and that our investment team acts within ethical and professional standards.

This review is a validation that we are on the right path and should reassure the people of New York that the pension fund is being managed properly and ethically.

DiNapoli (D) is running against political newcomer Robert Antonacci (R).

 

Photo by Awhill34 via Wikimedia Commons