After yet another meeting of the Board of Investment, two issues continue to swirl around its authority regarding actions of the state treasurer, including a large payment made to the Attorney General’s Office in the settlement of a fraud and bankruptcy case.
The board oversees the state’s investment policies and $9.5 billion in securities and other portfolios and has expressed dissatisfaction with Treasurer David Petersen’s lack of communications regarding a $1.9 million payment to the AG for legal fees in the National Century Financial Enterprises (NCFE) case, which cost 200 local governments and the state $131 million in lost investments.
“You have a right as a board to come to this meeting and express concern about anything going on in this office, from personnel issues to certainly this payment . . .” Mr. Petersen told the board at its regular monthly meeting Aug. 16. The payment also was discussed at two board meetings in July.
“But in my opinion as an elected official and chairman of the board… I have specific duties to make those decisions.” He added, however, that on second thought, he might have notified the board of his decision to make the payment.
“If we have no standing in the issue, where does the issue leave us?” asked board member and Director of the Department of Administration Bill Bell. “Is the issue closed?”
Mr. Bell has complained that he found out about the payment to the AG in Arizona Capitol Times.
At its next meeting, the board is expected to review a list of law firms submitted by the AG’s office that would provide an opinion on the board’s constitutional and statutory authority in such matters. The attorneys would be paid by the AG.
The relationship between the AG’s office and the Treasurer’s Office is a sticky one because Mr. Petersen is being investigated by the AG for alleged felonies committed as a public official. For that reason, he recused himself from negotiations over the payment, but authorized it based on verbal advice from the solicitor general, an independent arm of the AG’s office.
Independent review sought
At the meeting this week, board member Felecia Rotellini, superintendent of the Department of Financial Institutions, said the board should get an outside independent review of the transaction and how the solicitor general applied the law to the NCFE case.
“Everyone has acknowledged there is a conflict of interest… it happens every day… it’s not bad,” she said. “Attorneys deal with conflicts of interest with their clients every day. I’m not suggesting there’s anything wrong or inappropriate with what has transpired…”
Ms. Rotellini questioned whether the Collection Enforcement Revolving Fund (CERF) law (ARS 41-191.03) applies to settlements obtained through lawsuits.
“It would be in the best interests of the state to have that type of opinion,” she said. “I don’t see that analysis in the opinion of the solicitor general at this time.”
In an e-mail dated Aug. 8, Solicitor General Mary O’Grady wrote, “We believe the [Attorney General’s Office] is not only entitled, but required, to collect the statutorily mandated CERF collection credit.”
Two hundred local Arizona governmental entities and many governments in other states invested in NCFE, which made loans to inner-city Medicare hospitals, until it collapsed in 2002 in a fraud scandal involving $3 billion in losses to all investors, including the $131 million in Arizona.
The state lost $14.3 million. So far, $52 million has been recovered in Arizona, and the case is still in litigation. A Texas law firm, Gibbs & Brunn, represented local governments in the case, and its fees ranged from 18 percent to 11 percent of the recovered amount.
Meanwhile, Democrat candi date for treasurer Rano Singh says there should be an independent audit of monthly and annual reports the treasurer makes to the Board of Investment, citing a recently revealed situation where a treasury employee filed a false report to the board. Ms. Singh has been attending board meetings since she announced her candidacy and had a lengthy meeting with Mr. Petersen.
Ms. Singh also commented on Mr. Petersen’s legal problems.
“This culture of corruption — and it’s not just Republicans — sends a bad message,” Ms. Singh said. “What are we telling our kids when our leaders are not above board?”
Sen. Dean Martin is the Republican candidate for treasurer.