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Open Letter to Florida Pensioners Re: The SBA’s Lack of Oversight of Private Placement Alternative Investments

Dear Florida Pensioners,

I urge you to reconsider whether investments in securities that are not sold through a public offering or not subject to SEC-level reporting and disclosure requirements (private placements) are appropriate investments for your Florida Retirement System Pension Plan (FPP), and to conduct a thorough investigation into the relationship between the Florida State Board of Administration (SBA) and its New York investment manager, agent, and fiduciary Liberty Partners LLC (Liberty), whether such relationship exists today or not.

The first investment advisory agreement between the two was executed in 1992 by Ash Williams, the SBA’s current Executive Director and Chief Investment Officer, and Peter Bennett, founder of Liberty, which at the time was a start-up legally represented by Michael Stakias, Esq., who later left his Philadelphia law firm to become a partner at Liberty.2, 3

As the foundation for this letter I refer you to the SBA’s relationship with Liberty and its investment in Regulus Group LLC (Regulus).4, 5, 6 The investment in Regulus was made in 1996.7 In October 2012, the SBA finally reported to me that Liberty’s sale of Regulus for ~$100 million produced a $162 million net loss in 2008 for the FPP. 9 This was a surprise to me because in a 2010 Tampa Bay Times article on Liberty, the SBA’s Dennis MacKee was quoted as saying: “We do not comment on the value of individual company holdings10 and the Tampa Bay Times also reported “Net return after fees on these companies is not known, but SBA documents describe them as profitable: Regulus, a claims processing company; sold in May 2008, a dozen years after Liberty acquired it.11 In other words, two years after the SBA incurred a major loss on the Regulus investment it falsely reported to the Tampa Bay Times that the Regulus investment was profitable – clearly, a misleading statement, outright lie, or patent incompetency. Did anyone at the SBA know in 2010 that in 2008 it lost $162 million on its investment in Regulus? If yes, then did anyone at the SBA report the loss to the Trustees? Again, in 2015 the Office of General Counsel of the SBA wrote it was not aware of any reports about Liberty and Regulus presented to the SBA Board of Trustees.12 It took me over 16 years of hard work and unrelenting persistence, which irritated the SBA, to know what the pensioner’s investment in Regulus was worth.

In 2011, Sydney Freedberg, Tampa Bay Times, in my opinion, grossly underestimated the problems for pensioners in appraising the value of Private Placement Alternative Investments, which are only placed in the Fund for the Florida Retirement System Pension Plan:

“Taxpayers [in Florida] are kept in the dark about many business decisions of the State Board of Administration, the agency that runs the nation’s fourth-largest public pension system for about 1 million current and former public employees, including teachers, police officers and state and county workers. It also manages a fund that pools money from hundreds of Florida towns, counties and school districts. No ordinary retiree can monitor dozens of private investments bought with $20 billion of public money. In other words, no ordinary retiree or taxpayer can easily find out what they invested in, whether funds are succeeding or who are lobbying for new private pension deals. What some of these private investments are really worth won’t be publicly known until five to 10 years or more after the deal is made [or the deal is ended or never (author)]. Take Liberty Partners, a private partnership in which the state has plowed more than $2.5 billion over 18 years. As of October, the pension fund had gotten back $2.4 billion. Liberty received $180 million in fees. In most private equity deals, management fees are 1 percent to 2 percent of the annual investment. Liberty’s are 7 percent of what the state invested.8

Edward Siedle most clearly articulates a rational public investment policy: “If it’s something the public can’t be told about, then the state [Florida] shouldn’t be allowed to invest in it.” Edward Siedle, is the nation’s leading expert in forensic investigations of pensions, focusing upon excessive and hidden investment fees and risks, conflicts of interest and wrongdoing. A former SEC asset management lawyer and industry executive with over 30 years experience, he has investigated over $1 trillion in retirement plans.

As paid consideration for its net loss on the Regulus investment, the SBA paid Liberty at least $27.7 million in fees13 plus carried interest compensation. Together, the sum of the net loss, fees, and carried interest cost Florida pensioners ~$190 million. In 2010, the Tampa Bay Times reported that the SBA paid Liberty “fees of $180 million” that are “7% of investment” and later cited from an Alignment Capital report that “Liberty’s managers had received $193 million in fees and profits from Florida’s investment.”14 On the Regulus investment Liberty, not the SBA, calculated the incentive fees.15 If the Public Records Requests documents are correct, the net of fees Liberty and/or its partners individually had $0 net cash invested in Regulus when the net loss was incurred. The numbers suggest Liberty and/or its partners’ investment in Regulus produced close to an infinite IRR on their cash investment, despite losses to Florida pensioners and others.

The SBA’s $162 million net loss on the Regulus investment occurred years after Liberty had “written off four companies as worthless, including a $21.4 million investment in a firm called Med Logistics and $31.5 million invested in Gallagher Paper”;16 six years after Liberty reported to the SBA that Merrill Lynch valued Regulus in the range of $419 to $651 million17 and just two weeks later reported to the U.S. District Court for the Eastern District of Pennsylvania (but not the SBA) that Regulus’ adjusted market value was minus $257 million;18 five years after the SBA’s own consultants, Alignment Capital Group (Alignment Capital), wrote the SBA “If it is not possible to engage the Liberty principals in negotiations for current market terms, terminate the relationship as soon as possible;19 two years before the SBA advised the Tampa Bay Times that Regulus was a “winner”;20 and before there had been any transparency, if there ever has been any, on the disposition of the SBA’s “$174 million investment in a controversial for-profit school management company “called Edison Schools21 by Liberty.22, 23

The issues for consideration are Liberty’s inadequate reporting and disclosure in the form of misleading statements, omissions of material information, and long-term concealment of facts to the SBA;24 SBA’s lack of reporting to its Trustees about Liberty (in 2015, the Office of General Counsel of the SBA wrote me it is not aware of any reports about Liberty and Regulus presented to the SBA Board of Trustees);25 excessive fees;26 lack of public transparency: “In Florida, transparency is not up to the whim or grace of public officials. Instead, it is an enforceable right,” (Florida Attorney General and SBA Trustee Pam Bondi);27 or “Transparency does not extend to the public” (SBA spokesman Dennis MacKee);28 and in my opinion the appearance of an Ole’ Boy network management style between the SBA and Liberty.29, 30 Even with over a decade of PRR experience, the SBA’s interpretation of transparency remains entirely confusing to me and seemingly contrary to the best interests of pensioners. In fact, in 2007, I wrote to the Office of the SBA General Counsel asking: “I am confused who the State Board of Administration of Florida has a duty to protect, the investment advisor or the State of Florida..”31

In my decades plus of experience with the SBA, absent clerical error or inadequate redaction, any potentially negative information requested pursuant to Florida Public Records Laws is a closed book. Furthering my conclusion is the SBA’s admission pursuant to its interpretation of Florida Statutes that the SBA’s investment managers, such as Liberty, are the “decision-makers” on whether information is designated as being proprietary, confidential business information and/or trade secrets for redacting information as being confidential and/or exempt from disclosure in PRRs pursuant to certain exemptions including, without limitation, exemptions under Sections 119.071 and 215.4401, Florida Statutes, and/or Sepro Corporation v Florida Department of Environmental Protection, 839 So.2d 781 (1st DCA 2003).32, 33 In the extreme, the SBA’s investment managers can hide any information they so desire and the public will never know through Public Record Requests what these private investments are really worth unless the SBA decides to advise the Trustees and make the information transparent to the public.

Bennett of Liberty admitted that it did not show Regulus Liberty’s reports to the SBA on Regulus in advance of their being submitted. The first time I ever received and read any report from Liberty to the SBA was via a Public Records Requests (PRRs) after I left Regulus. After learning about the FPP’s loss in October 2012, I conducted extensive and insightful (as an insider) research on the SBA-Liberty-Regulus relationship. In late 2014, I sent Florida a report of facts only on the Regulus matter with ~6,000 documents that were derived solely from PRRs, legal admissions, and the record.34 The facts in my report suggest that Liberty advanced misleading statements, omitted to report material information, and over the long term concealed facts in its communication with the SBA.35, 36 I have not received a response from anyone in Florida regarding the report although FedEx and other delivery receipts suggest all of my correspondence was received and in some instances ‘received and not read.’

If these securities were subject to SEC-level reporting and disclosure requirements and there had been adequate oversight and transparency to/by the SBA, then would the loss on the Regulus investment have been as large as it was or would there have been any net loss at all? In 2011, Edward Siedle, who covers pension, money management, and securities industry practices, and is referred to as the “Pension Detective,” expressed his view on the SBA’s transparency policy as it related to private placements, which seems worth reviewing again: “Non-disclosure might be appropriate for a private pension fund but not for public pensions that turn to taxpayers for bailouts if poor investments leave them underfunded.”37 Again, in 2007, I wrote to the Office of the SBA General Counsel asking: “I am confused who the State Board of Administration of Florida has a duty to protect, the investment advisor or the State of Florida.”38

 

Sincerely, /David Still/

PS Ash Williams, chief investment officer and executive director of the Florida State Board of Administration was not interested enough in the Regulus loss to even open my email communication:

—–Original Message—–
From: Williams_Ash [mailto:Ash.Williams@sbafla.com]
Sent: Monday, October 26, 2015 12:18 PM
To: David Still
Subject: Not read: Open Letter to Florida Pensioners and Stakeholder

Disclaimer: This communication may contain confidential, proprietary, and/or privileged information. It is intended solely for the use of the addressee. If you are not the intended recipient, you are strictly prohibited from disclosing, copying, distributing or using any of this information. If you received this communication in error, please contact the sender immediately and destroy the material in its entirety, whether electronic or hard copy.

__________________________________________________________________________

Footnotes

1. David was the founder of Regulus and served at different times as its President, Chief Executive Officer, and Chairman, as well as being its original Board Manager and owner of management shares. He left in 2000, eight years before Liberty sold Regulus, but was am uninvolved shareholder until 2002.
2. Nell Bowers, “Response to Public Records Request — Tranche Twelve, SBA’s Partial Response to SPT’s Liberty Partners PRR dated April 19, 2011, Items 1 & 2 for Agreements and Amendments By and Between the SBA and Liberty Partners, Contents of SBA’s Contract and Correspondence file No 92-50 Maintained by the Office of General Counsel,” SBA May 23, 2012.
3. From 1996 through 1998 Michael Stakias represented Regulus and Liberty, then moved to be a partner, managing director, and later president of Liberty and personal defendant in legal actions by David Still.
4. David Still, “Florida SBA’s Lack of Disclosure Requirements, Oversight, and Transparency Fail Trustees and Pensioners,” Street Wisdom for Founders of Startups, August 29, 2014, updated June 11, 2015, www.davidbstill.com/2014/08/florida-sba-fog-enshrouds-transparency accessed July 21, 2015.
5. Kris Hundley, “State pays $180 million in fees, gets little from long-term investment,” St Petersburg Times, October 17, 2010.
6. Sydney Freedberg, “Florida’s pension administrator touts transparency…with exceptions,” Tampa Bay Times April 23, 2011, www.tampabay.com/news/business/floridas-pension-administrator-touts-transparency-8230-with-exceptions/1165403 accessed June 2, 2012.
7. Liberty Partners, “SBA Response to Public Records Request,” Liberty Quarterly Report to SBA, July 19, 1996.
8. Sydney Freedberg, “Florida’s pension administrator touts transparency…with exceptions,” Tampa Bay Times, April 23, 2011, http://www.tampabay.com/news/business/floridas-pension-administrator-touts-transparency-8230-with-exceptions/1165403 accessed June 2, 2012.
9. Nell Bowers, “Response to Public Records Request,” Office of the SBA General Counsel e-mail to David Still, October 30, 2012.
10. Kris Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 17, 2010.
11. Kris Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 17, 2010.
12. Nell Bowers, “SBA Response to Public Records Request,” Office of SBA General Counsel e-mail message to David Still, April 6, 2015.
13. Linda Lettera, SBA Response to Public Records Request,” Office of SBA General Counsel letter to David Still, August 21, 2006.
14. Kris Hundley, Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 17, 2010.
15. Nell Bowers, “Response to Public Records Request,” May 23, 2012
16. Kris Hundley, Public Pension Partner Tall on Fees, Short on Returns, Tampa Bay Times, October 17, 2010.
17. Liberty Partners, SBA Response to Public Records Request,” Liberty Quarterly Report to SBA, June 30, 2002
18. Liberty Partners et al, The U.S. District Court for the Eastern District of Pennsylvania, No 00-CV-6053, August 12, 2002, and February 16, 2003.
19. Austin M. Long III, Craig Nickels, “Liberty Partners Terms and Conditions, A Critique of the current economic partnership terms,” Alignment Capital Group, LLC report to the SBA, July 2, 2003.
20. Kris Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 18, 2010
21. Helen Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times article, September 25, 2003
22. Helen Hundley, “State fund buys school operator,” St. Petersburg Times, September 25, 2003, http://www.sptimes.com/2003/09/25/Business/.shtml accessed June 2, 2014.
23. “Dereliction of Duty, Final Stab in the Back—Edison Schools and Pension Funds,” People For the American Way http://www.pfaw.org/media-center/publications/dereliction-of-duty/final-stab-the-back-edison-schools-and-pension-funds accessed June 2, 2014.
24. David Still, “Liberty Partners – letter, report, and ~6000 PDF documents from admission and the record to the SBA,” letter and material to Florida’s Attorney General and Chief Financial Officer, September 21, 2013.
25. Nell Bowers, “SBA Response to Public Records Request,” Office of SBA General Counsel e-mail to David Still, April 6, 2015.
26. Kris Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 17, 2010.
27. Pam Bondi, http://www.myflsunshine.com/ accessed June 2, 2015.
28. Kris Hundley, “Public Pension Partner Tall on Fees, Short on Returns,” Tampa Bay Times, October 18, 2010.
29. My investigation into this investment and correspondence with Florida began in 2002 – David Still, “Letter to Mr. Thomas Herndon with draft copy of second amended complaint: David Still v. Liberty Partners LLP, Regulus Group LLC, et al, CA No. 00-CV-6053 IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA and RICO Case Statement dated June 18, 2001 cc: Governor Jeb Bush, Chairman of the SBA Board of Trustees,” March 15, 2002 and continued into 2015.
30. David Still, “Public Records Request re: Status of Liberty Partners to Ash Williams, Lamar Taylor, Maureen Hazen, Dennis MacKee, cc: Jeff Atwater, Patricia A. “Trish” Conners,” March 28, 2015.
31. David Still, “Subject: Information Request,” Letter to William Beck, Esq. and Linda Lettera, Esq. SBA,” June 2, 2007.
32. Nell Bowers, “SBA Response to Public Records Request,” Office of SBA General Counsel e-mail message to David Still, April 6, 2015.
33. Dennis MacKee,SBA Response to Public Records Request,” SBA e-mail message to David Still, May 28, 2015.
34. My report plus ~6,000 documents on a thumb-drive are in the possession of the Offices of the Florida Attorney General and Chief Financial Officer. Follow-up letters were sent to Governor Scott, Attorney General Bondi, and Chief Financial Officer Atwater. ‘Delivery receipts’ and/or ‘not read’ confirmation documents are available; no acknowledgment or response to my report was sent to me.
35. David Still, “Liberty Partners and SBA,” letter report and documents to The Honorable Pamela Bondi with copies to Jeff Atwater, Patricia A. “Trish” Conners, Esq., and Ms. Beverly Bailey, September 14, 2013.
36. As full disclosure, I had a financial and personal interest in Regulus. In 1995 I founded Regulus and left the company in 2000, eight years before Liberty sold Regulus. Liberty has ruined my wife’s and my life. My original partner, Lester Stockel, had a financial and personal interest in Regulus. He and his wife died by murder-suicide three months after Liberty sold Regulus. I have no evidence their tragedy was caused by the Liberty-Regulus relationship. See Taylor K. Vecsey, Man Killed Wife and Self, Police Say, Couple discovered in their East Hampton bed,” The East Hampton Star article, August 21, 2008.
37. Sydney P. Freedberg, “Florida’s pension administrator touts transparency … with exceptions,” Tampa Bay Times April 23, 2011, www.tampabay.com/news/business/floridas-pension-administrator-touts-transparency-8230-with-exceptions/1165403 accessed June 2, 2012.
38. David Still, “Subject: Information Request,” Letter to William Beck, Esq. and Linda Lettera, Esq. at SBA, June 2, 2007. 

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