Archive for the 'Finance' Category

Gerald Parksy Deposed today in Villalobos Case

May 3, 2012, by Seth Hettena. 0 Comments

икона за подарък

Not Having a Good Day

California GOP bigwig Gerald Parsky of Rancho Santa Fe is being deposed today about his relationship with Alfred Villalobos, a former board member CEO of CalPERS, the Golden State’s giant pension, who has been accused of accused of bribing pension fund officials with luxury trips and gifts to influence investment decisions.

CalPERS tried to forestall this airing of its dirty laundry, but a federal judge blocked the pension’s request to stop the deposition from taking place.

Villalobos was paid more than $47 million in commissions by private equity and real estate investment managers to help them win CalPERS contracts to manage about $4.8 billion worth of the fund’s securities from 2005 to 2009, according to a lawsuit filed by the California Attorney General’s office.

One of those private equity firms was Aurora Capital Group of Los Angeles, which hired Villalobos in 2008. Parsky is Aurora’s chairman. He’s also a former assistant Treasury secretary, a UC regent and was George W. Bush’s major doom in California.

So politically connected is Parsky that ARVCO allegedly intervened with CalPERS staff to obtain investment money for Aurora, pointing out the political juice that Parsky brought with him, according to an independent law firm investigation of the matter. CalPERS coughed up $400 million for Aurora Resurgence in 2008, earning Villalobos and his firm, ARVCO, a $4 million fee. Another $150 million CalPERS investment in a different Aurora fund, netted nearly $2 million for ARVCO.

Today, Parsky is being deposed in Los Angeles. Tomorrow, Aurora’s general counsel, Timothy Hart, will get his turn.
 

Gerald Parksy Subpoena

The Ben Stein-Ray Lucia Mutual Admiration Society

April 4, 2012, by Seth Hettena. 0 Comments

Actor and corporate pitchman Ben Stein charges more than $50,000 for a single speech, according to his page at the Keppler Speakers Bureau.

If that’s the case, I would love to know how much he charges Ray “Buckets of Money” Lucia for making numerous appearances each year at Lucia’s free seminars and lauding him in The New York Times as a “guru.”

Let’s face it: it’s Stein, not Lucia, who is the big draw at the seminars. Stein has made a career out of being a bow-tied smartypants ever since he famously played a dull economics teacher in the movie Ferris Bueller’s Day Off. He even sued over his signature look in this lawsuit in which he describes himself as “the most famous economics teacher in the world.” In the public’s mind, Ben Stein is what an economist looks like.

The public doesn’t know or care that Stein is a securities lawyer by trade whose credentials as an economist amount to a famous economist for a father and a bachelor’s degree in economics. Never mind that to the folks I know in the finance world think Lucia and his buckets are a joke. Never mind that anyone at Goldman Sachs who starts blabbing about buckets of money will be shot at dawn.

I doubt that Stein truly believes that the “genius” of Ray Lucia is his bucket strategy. His genius such as it is lies in his salesmanship. Lucia understands that regular people don’t want to read financial reports and SEC filings. They want to see a man who plays an economist on TV. They want to hear jokes get some free advice about what to do with their retirement nest eggs. They want a show.

So they come for a show and they leave with a new money manager, Lucia’s son, Ray Jr. It will take a while before these unsuspecting investors realize that Lucia Jr. has drilled holes in their buckets with his company’s high fees and questionable investments such as non-tradeable REITs that earn Lucia huge commissions.

Stein provides his pal Lucia an additional, equally valuable service — repeatedly dropping Lucia’s name in his business columns in The New York Times and elsewhere. Stein’s shilling got him canned from the Times, so now he name drops Lucia in his American Spectator diary.

Stein will say almost anything if you pay him. He served as an expert witness for lawyers at Milberg Weiss until the firm went down under federal indictment for bribery and fraud. He has pitched Comcast, eye drops, cars, office equipment. So it’s no surprise that Stein praises Lucia as a “guru” or a “genius” in the same breath as Warren Buffet.

But this is a particularly insidious form of advertising. If you repeat something enough times, goes the old saw, it becomes truth. Especially when you can repeat it in The New York Times.

I happened to be sitting at Morton’s restaurant in Beverly Hills a few days ago with Mr. [Phil] DeMuth and with another financial adviser for whom I have high esteem, Raymond J. Lucia (for whom – full disclosure – I am about to give a speech or two urging people to save for retirement).

Ray and Phil said something like this to me: “You know there are not a lot of shows on TV that actually teach the viewer how to be a better investor. There is a lot of stock picking and predicting what can’t be predicted, but there is not a lot that tells the ordinary Joe or Jane how to save for retirement.”

Ray and Phil were right. And they will keep being right.
~ The New York Times, Feb. 27, 2005

I was recently on a panel with the stock guru Ray Lucia, who offered overwhelming data about how impossible it was to pick stocks, trade in and out of them and fare as well as the market. His data was terrifying.
~ The New York Times, Oct. 14, 2007

I checked with my investment gurus, Phil DeMuth, Raymond J. Lucia and Kevin Hanley. None of us could see how Mr. Madoff could do what his friends said he could do.
~ The New York Times, Dec. 26, 2008

I am to give a speech at a huge gathering hosted by my pal Ray Lucia. It is about investing. He has an immense crowd of well over 1,000 people today and my job is not really to sell them anything, but to give them a general overview of the economy.
~The American Spectator, May 2010.

Now, to pack and prepare to go see my pal Ray Lucia. Ray is simply the best wealth manager I know of. He knows more about personal finance than any other person I have ever met. His advice — lots of liquidity and very wide diversification — is so sensible it has saved me from suicide many a night. This guy is a lifesaver where managing money is concerned. We are colleagues, so I am not disinterested, but even before we were colleagues, I was learning from him and being guided by him.
~The American Spectator, June 1, 2010.

I have done the best I can, with the help of some true geniuses of finance like Phil DeMuth, Chris DeMuth, Ray Lucia, Anil Vazirani, J.W. Roth and, supreme above all of them, John Bogle and Warren Buffett, to invest wisely.
~The American Spectator, Aug. 12, 2011

Ray Lucia Is Wrong on REITs

March 30, 2012, by Seth Hettena. 1 Comment

Ray Lucia speaking at Sean Hannity's Freedom Concert in San Diego. Photo by Andi Hazelwood.

In 2010, radio talk show host Ray “Buckets of Money” Lucia threatened to sue me for $300,000 for defamation over a blog post on this website. My post pointed out Lucia’s relationship to a securities firm that paid $2 million to settle U.S. Securities and Exchange Commission charges.

Nothing ever came of the threats and, coincidentally, (or not?), Lucia shortly thereafter told the SEC that he would no longer register with them as investment adviser. Lucia still hosts his radio show and rounds up new clients at his free seminars with actor Ben Stein.

I was content to leave things alone until last week when I heard from a client of Lucia’s son, Ray Jr., who now runs the investment business started by his illustrious father.

This person, whom I’ll call Joe, is, runs a small home repair based business and is approaching retirement age. Joe attended one of Lucia Sr.’s “Buckets of Money” seminars 18 months ago and entrusted his money to Lucia Jr.  He wishes he had read this blog beforehand.

Today, they are illiquid. About $80,000 of Joe’s money — 30 percent of his net worth — is locked away in real estate investment trusts (REITs) that aren’t traded on any exchange and therefore can’t be sold for years.

Joe’s wife is ill and may need to take early retirement, which leaves Joe wondering how he’s going to pay the bills.

For some retirees, REITs can be a good investment. REITs are required to repay at least 90 percent of taxable income to investors or the forfeit their tax exempt status. So, they are sort of function like bonds but with much better rates, something like 6 percent.

So what’s the catch? The REITs Joe is invested are non-traded REITs. This is an investment that can’t be sold for years — at least not without taking a big loss. FINRA, the financial industry self-regulatory body, last year issued an investor alert warning about the dangers of these non-traded REITs.

Both Ray Lucia Sr. and Jr. are big believers in these non-traded REITs. What they don’t tell you is that it’s a great deal for the folks at RJL Wealth Management. Brokers love non-traded REITs for the whopping commission a sale generates, which can range between 10 percent and 15 percent (!). If you really feel that you need a REIT in your portfolio, then buy a publicly traded one on Charles Schwab or some other online broker where the commissions run $8.95.

Joe never found out what the commissions were on his non-traded REITs including Behringer Harvard Multifamily I, which for years has combined high fees with poor performance. (For more, see reitwrecks.com’s Non-Traded REIT Forum.)

But that’s not all! For getting Joe in this predicament, RJL Wealth Management, Lucia Jr.’s company, collects a 1.9 percent fee — more salt on the wound. Buyer beware.

 

Great Quotes

October 26, 2011, by Seth Hettena. 0 Comments

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they can not save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying. It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment

- 1933 Senate testimony of Mariner Eccles, later first chairman of Federal Reserve.

via the excellent London Banker

Who is Jim McCarthy of CounterPoint Strategies?

August 1, 2011, by Seth Hettena. 2 Comments

????????ikoniIf you’ve found your way to this page, there’s a good chance that you’re a journalist who has just had the pleasure of meeting an unusually aggressive PR flak named Jim McCarthy.

Don't let me scare you

First off, relax. If anything, the fact that you’ve run into Jim may be a good thing. This guy has represented some major league Wall Street crooks, so there’s a chance that you’re on to something.

CounterPoint’s current and former clients include:

  • Elliott Broidy, a wealthy California investor who pleaded guilty to paying $1 million in bribes to influence former New York State Comptroller Alan Hevesi.
  • Ira Rennert’s Renco Group and its Doe Run subsidiary St. Louis, the largest lead producer in the Western hemisphere. Jim does not want you to watch this video about the company’s operations in Peru.
  • The Formaldehyde Council
  • The National Fisheries Institute (Think mercury)
  • Bond insurer MBIA.
  • The College Sports Council
  • Hedge fund founder Raj Rajaratnam, who was convicted of securities fraud. (Update: Raj Rajaratnam was sentenced to 11 years in prison.)
  • Dallas-based Kosmos Energy, majority-owned by private-equity firms Blackstone Group and Warburg Pincus.

I had the pleasure of dealing with Mr. McCarthy a few times when I was investigating one of those crooks, a guy named Elliot Broidy, so I decided to put together this handy-dandy guide for the perplexed:

Jim is president of CounterPoint Strategies, a public relations firm in Washington, D.C. that specializes in an aggressive, combative style of crisis management. Jim is the real-life version of the fictional tobacco flak in Christopher Buckley’s novel Thank You For Smoking. His job is to make your story about you.

He’s the son of liberal journalist and peace activist Colman McCarthy. The acorn fell pretty far from the tree in this case. Young Jim registered as a Republican at age 18.

Early in his PR career, Jim handled a variety of Fortune 500 and foreign government accounts for two public relations agencies in Washington, Ruder-Finn and Nichols-Dezenhall, the “brass-knuckled boys” of DC’s PR world.

Ready to pounce

In 1994, McCarthy started a boutique public relations agency, McCarthy Communications. McCarthy Communications reportedly billed one client, the Saginaw Chippewa Indian tribe of central Michigan, $280,000 for a media campaign designed to force out the head of the Bureau of Indian Affairs. Replying to a BIA spokesman who said he had never seen such tactics, McCarthy said, “I say to Mr. Hackler, welcome to the Beltway.”

A confidential McCarthy Communications proposal was obtained by The Washington Post. (See William Claiborne, “Tribe PR Drive Targeted BIA Head”, The Washington Post, Aug. 16, 1999)

McCarthy was hired by the Augusta National Golf Club in 2002 when the men-only club was under pressure by activist [[Martha Burk]] to admit women. McCarthy advised a “pugnacious” approach. “My clients appreciate that I like to get in the arena, take off the gloves and throw down,” McCarthy told Alan Shipnuck, who wrote a book about Augusta’s battle to keep women out. (See Taking on the Times”, Sports Illustrated, April 6, 2004.)

It’s the first time I’ve done this kind of media criticism as part of an overall strategy for a client, and I don’t know of any other PR firm that has done it. It’s pretty cutting-edge. Big PR firms are like large corporations in that they have always been afraid to take on the press directly, because there is this belief if you create an adversarial relationship, you will never be treated fairly again. But for a venerable institution like Augusta National to embrace that strategy, well, that has certainly opened some eyes. Now I’m trying to build media-crit-driven crisis management into stand-alone business. Who knows? Maybe I’ll be snapped up by a big, deep-pocketed PR firm.

In 2004, McCarthy co-founded Public Interest Watch, a Washington nonprofit heavily funded by Exxon Mobil. According to BusinessWeek, McCarthy’s ex-employer, renamed Dezenhall Resources, helped create PIW in 2002 specifically to prod the IRS to go after Greenpeace.

David "Nick" Nichols

Just as McCarthy had hoped, deep pockets did find him. McCarthy Communications was hired in 2004 to represent investor Kenneth Langone, who was named in a lawsuit by then-New York State Attorney General Elliot Spitzer. On Langone’s behalf, McCarthy has repeatedly attacked the credibility of Gretchen Morgenson, a Pulitzer Prize winning business journalist for The New York Times, saying businesspeople regarded her with “pure contempt.” Apparently, Langone didn’t like it that Morgenson pointed out how Langone was a poster boy for executive overcompensation.

In 2008, McCarthy co-founded CounterPoint Strategies. McCarthy is the oversized face of CounterPoint, but behind the scenes is CounterPoint’s chairman, David “Nick” Nichols, a former investigative journalist who went on to found Nichols-Dezenhall, McCarthy’s old stomping grounds.

Before forming Nichols-Dezenhall, Nichols served as a campaign press secretary for New York City Mayor John Lindsay and then headed to Wisconsin where he served as a legislative staffer. Nichols also served for several as a senior media spokesperson for the Cuban-Haitian Task Force, which was charged with dealing with the thousands of refugees from Castro’s Cuba in the Mariel boat lift.

Share your McCarthy horror stories below:

 

 

Did an LA money man give up ex-NY Comptroller Alan Hevesi?

September 29, 2010, by Seth Hettena. 0 Comments

Broidy and Bibi

Did admitted felon, Bush fundraiser and former RNC finance committee chairman Elliott Broidy give up the goods on former New York Comptroller Alan Hevesi?

Broidy, former chairman of Markstone Capital Group, pleaded guilty in December to a felony and admitted showering officials at the New York state pension fund with nearly $1 million in exchange for a $250 million investment in Markstone. As part of his plea, Broidy agreed to cooperate with investigators with the New York State attorney general’s office.

The news today is that Alan Hevesi, the New York comptroller who oversaw the pension fund, reportedly intends to plead guilty apparently for taking Broidy’s “gifts.” Broidy paid $75,000 to send Hevesi and his relatives on five trips to Israel, including first-class airfare, luxury hotel accommodations and a security detail, according to several reports.

According to the Wall Street Journal:

A person familiar with the matter at the time said Mr. Hevesi had long expressed a desire to stay at the historic King David hotel, which overlooks Jerusalem’s Old City. Mr. Broidy paid for a stay there, this person said.

Readers of this blog might note how similar this is to the $63,000 trip CalPERS investment officer Leon Shahinian made to New York in 2007. Shahinian’s private jet and his lavish hotel suite were paid for by billionaire Leon Black. At the time, Black and his agent, Al Villalobos, CalPERS was considering investing $700 million Black’s Apollo Global Management. Guess Jerry Brown isn’t as determined to root out pension corruption as Cuomo.

But I digress.

Broidy used his New York connections to leverage an investment in CalPERS. At the time of Broidy’s guilty plea, the LA Times reported that:

In 2003, Broidy mounted a major selling effort to get CalPERS to invest in his firm, according to documents released by CalPERS that report meetings between investment pitchmen and board members. Letters from Broidy to board members indicate that Markstone sought to leverage the New York investment into business with CalPERS, which eventually agreed to invest $50 million in Markstone.

Broidy even brought New York state Comptroller Alan Hevesi with him to a meeting in Sacramento with CalPERS staff to pitch Markstone in 2003. One of those meetings was with then-state Treasurer and CalPERS board member Phil Angelides. Broidy offered to bring Angelides and other California officials to Israel to see its economic strength.

Broidy also cultivated another influential ally at CalPERS, then-state Controller Steve Westly, who also was on the CalPERS board. Broidy had met privately with Westly at least half a dozen times by October 2004, according to Westly’s desk calendar. One of those meetings was at Broidy’s office in Tel Aviv.

Broidy once hosted fundraisers for President Bush and other lavish parties in his Bel Air manse. Bush appointed him to the Kennedy Center’s board and U.S. Homeland Security Advisory Council. He was a trustee of the Los Angeles Fire and Police Pension fund from 2002 until he resigned in May 2009.

He also has ties to San Diego, serving in the 1980s as a money manager for Glen Bell, the late Taco Bell founder and Rancho Santa Fe resident. That a relationship that ended acrimoniously, with Bell accusing Broidy in court papers of cheating him while he suffered from Parkinson’s disease.

RICO lawsuit filed in SD over NY pension corruption

September 23, 2010, by Seth Hettena. 1 Comment

Pacific Corporate Group of La Jolla, the long-time adviser to CalPERS and other big U.S. pension funds, is accusing one of its former employees “racketeering, illegal kickbacks, betrayal and deceit” for his role in a corruption scandal at the New York State Common Retirement Fund.

PCG and its former officer, Stephen J. Moseley, have locked horns in San Diego County Superior Court, trading charges and counter-charges in an unusually public spat in the staid world of pension management. I’ve posted the documents here.

Moseley fired the first shot by suing his former employer for refusing to pay the amounts he claims he is owed as a former officer. In his complaint, Moseley and his attorneys at Gordon & Rees accuse PCG and its founder, Christopher Bower, of misleading clients:

Defendants, through Christopher Bower, have engaged in a systematic scheme of hiding and concealing material facts from clients regarding investment opportunities which were sponsored by PCG. Once discovered, Defendants’ conduct contributed to the subsequent resignations of all partners in PCG Asset Management, including Plaintiff. In addition, Defendants, through Bower, have made a practice of misleading key PCG clients regarding staff size and turnover of PCG personnel, all in an effort to influence investment decisions in favor of PCG. Moreover, Defendants, through Bower, have fraudulently concealed Bowers’ interactions and relationships with various placement agents and intermediaries; fraudulently concealed Bowers’ interactions and relationships with current and former CalPERS board members including Alfred J. Villalobos; and denied and/or concealed the existence of material conflicts of interest. Defendants, through Bower, have used such acts to influence investment valuations and investment decisions, in order to advance the personal interests of Bower and certain unregistered placement agents in contravention of PCG’s fiduciary obligations.

PCG responded a few months later with guns blazing. It was Moseley, PCG says, who misled his employer by secretly paying kickbacks to officials at the New York state pension fund as a reward for in exchange for participating in a joint venture seeded in 2006 with $750 million from the New York State Common Retirement Fund. Moseley resigned shortly before the money was committed.

PCG last year settled with New York Attorney General Andrew Cuomo by forfeiting $2 million in fees that it earned from the New York state pension fund. The La Jolla money management firm says it settled because it can be held liable for an employee’s actions even if it was unaware of them.

Moseley’s allegations, PCG says, are the most recent example of a competitor seeking to do it harm by making false and defamatory allegations. According to PCG’s lawsuit, Moseley’s greed was the real reason he left the firm and if anything, he has been overpaid. Moseley threatened his former employer with “adverse publicity and injury to its reputation” if he wasn’t paid what he says he was owed.

PCG and its law firm, Sullivan, Hill, Lewin, Rez & Engel, filed its counter-claim under the Racketeering and Corrupt Organizations statute. The RICO statute carries the threat of treble damages, punitive damages and the right to recover attorney fees and litigation costs. Very few of these cases ever make it to trial because of the tremendous sums that are at stake for both sides.

Moseley’s conduct resulted in “tens of millions of dollars in damages,” and those damages would potentially be trebled under the RICO statute. In addition, PCG says it will seek punitive damages and attorney fees from Moseley.

You can decide for yourself by reading Moseley’s first amended complaint and PCG’s counterclaim:

Moseley v. PCG

A Good Dose of Schadenfreude

September 22, 2010, by Seth Hettena. 0 Comments

Subject: PCG / CalPERS
From: A Reader
To: seth@sethhettena.com

Just wanted to say keep up the good work. Not sure how many people are picking up on the coverage but it is good for a dose of schadenfreude for those of us that have dealt with these people.

The anonymous email saying you are on to more than you realize was not exaggerating. This behavior has gone on for years at PERS before Leon as well as plenty of other pension plans and their consultants.

Pacific Corporate Group Disclosure Letter to CalPERS

September 15, 2010, by Seth Hettena. 0 Comments

PCG Disclosure Letter to CalPERS

Background 1 2 and 3.

Inside the CalPERS Sausage Factory

August 31, 2010, by Seth Hettena. 0 Comments

I’ve posted some court documents relating to a bribery investigation that involves some big names in the private equity world:

  • CalPERS, the giant California pension;
  • Leon Black’s Apollo Group
  • Christopher Bower’s Pacific Corporate Group in La Jolla
  • Gerry Parsky’s Aurora Capital Group.

See the CalPERS documents  Btn_blue_77x28

Some background: California Attorney General Jerry Brown’s office in May sued former CalPERS CEO Federico Buenrostro Jr and placement agent and former Calpers board member Alfred Villalobos with fraudulent broker-dealer activities involving $4.8 billion in investments at the fund. (Read the lawsuit here.)

According to the lawsuit, Villalobos earned $47 million in commissions from clients including Black’s Apollo Management and Parsky’s Aurora Capital through corrupt relationships with individuals including CalPERS senior investment official Leon Shahinian, who recently left the pension:

When Villalobos was trying to persuade CalPERS to purchase a 10 percent equity interest in Apollo Global Management for $700 million in 2007 (as alleged in paragraphs 36-37 above), Shahinian accepted Villalobos’ invitation to travel by private jet to New York City to attend a fund-raising event on the evening of May 14, 2007 hosted by the Museum of Modern Art in honor of Leon Black (the “MOMA Event”), the founder and controlling shareholder of Apollo Global Management.

The trip include a private jet trip flight, a stay at the Mandarin Oriental Hotel and limousine service. Total cost: more than $63,000.

Villalobos’ firm ARVCO billed Apollo for the trip. I’ve posted the bill here.

One month later, at a closed door hearing of the CalPERS investment board, Shahanian recommended the board invest in Black’s fund.

Also at the meeting, Pacific Corporate Group’s Chris Bower admits at the meeting that he had a business relationship with Villalobos, but CalPERS general counsel Peter Mixon said the relationship didn’t pose a conflict of interest because PCG didn’t stand to benefit from the pension’s investment in Apollo.

Here is a transcript of the hearing:

CalPERS Closed Investment Hearing June 18, 2007

Finally, Leon Shahinian’s deposition, in which he denies being bribed, is here.

Shahinian said that sometime in 2006 he told Leon Black that he would like to have a “more direct” relationship with Apollo, meaning that if Apollo had investment opportunities they should show them to CalPERS directly.

Q. After you had this conversation with Leon Black, were you discussing with him a potential opportunity for CalPERS to invest in Apollo regarding a distressed market debt opportunity?

A. Yes

Q. And did you — were you hoping during that conversation, in exploring that investment opportunity, to deal directly with Apollo without need for a placement agent?

A. I had approached Apollo on the idea of CalPERS investing a substantial amount of money in a distressed debt type fund. And after I had that initial conversation with Leon Black expressing CalPERS’ interest to invest in a fund like that, I learned Apollo hired Arvco to be the placement agent.

Q. Did that surprise you?

A. It did.

Q. Why?

A: I guess I didn’t understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicitly indicated an interest in investing in.