In light of today’s ethics complaint against NY State Comptroller Thomas DiNapoli for alleged “pay to play” practices, I’d like to revisit the fate of the last major effort to drain the swamp of corruption otherwise known as the New York State Comptroller’s Office.
Back in October 2009, then-Attorney General Andrew Cuomo announced draft legislation with the somewhat corny acronym T.R.U.S.T., which stood for the “Taxpayers’ Reform for Upholding Security and Tranparency” Act. Behind that awkward and somewhat vague title was a hard-hitting bill designed to completely end the “pay to play” culture that has surrounded the Fund for over 20 years. Here is a .pdf of the Draft Trust Bill
Had the Legislature enacted the Trust Bill, it would have instituted the voluntary reforms that several major private equity firms agreed to in the wake of the pay-to-play scandals that engulfed the Hevesi administration and sent Hevesi and his top aide Hank Morris to prison. The anti-pay to play provisions in the bill were, in large part, modeled on SEC Rule 206(4)-5, which prohibited:
- an investment adviser from providing advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees make a contribution to certain elected officials or candidates.
- an adviser from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser, unless such third parties are registered broker-dealers or registered investment advisers, in each case themselves subject to pay to play restrictions, or
- an adviser from soliciting from others, or coordinating, contributions to certain elected officials or candidates or payments to political parties where the adviser is providing or seeking government business
Compare that to Section 1112 of the draft TRUST Bill:
§ 1112. No campaign contributions or solicitations.
1. An investment firm shall not accept, manage or retain an investment from, or provide investment management services to, the retirement system within two years after a contribution to a retirement system official is made by:
a. the investment firm;
b. any related party or relative of a related party, including, but not limited to, a person who becomes a related party within two years after a contribution to a retirement system official; or
c. the investment firm, related party or relative of a related party to any political party to aid a retirement system official, or to any political action committee controlled by the investment firm, related party, or relative of a related party of an investment firm to aid a retirement system official.
2. An investment firm, related party, or relative of a related party shall not, directly or indirectly, solicit any person or political action committee to make, solicit or coordinate any contribution to a retirement system official if the investment firm is seeking or has accepted an investment from the retirement system or is currently providing or seeking to provide investment management services to the retirement system.
3. Subdivision two of this section shall not apply to a contribution made by a related party or relative of a related party to a retirement system official for whom the related party or relative of a related party was entitled to vote at the time of the contribution and that does not exceed three hundred dollars from each person or entity in the aggregate to any retirement system official, per election.
The truly radical reform proposed by the TRUST bill, however, was its removal of the Comptroller as the sole trustee of the Common Retirement Fund. By replacing the Comptroller with a 13-member Board (which the Comptroller would still chair), the bill would have diffused any one person’s power and decision-making authority over the Fund and provided more transparency and expertise with respect to the Fund’s investment decisions. In addition, the board members would be insulated from inappropriate outside influence by the fact that each member would be a fiduciary to the Fund and be required to disclose any conflicts of interest.
Of course, DiNapoli opposed this reform legislation, complaining that he had already instituted most of the reforms by his own executive orders, and threatening that he would challenge the constitutionality (under the state constitution, of course) of any attempt to remove him as the Pension Fund’s sole trustee.
A full discussion of the source of the Comptroller’s authority over the Common Retirement Fund — and the Legislature’s authority to replace the Comptroller as sole trustee with a Board of Trustees — is far beyond the scope of this humble blog. For those who are interested in this “debate”, I recommend that you read Andria Bentley’s excellent 2009 Comment in the Albany Law Journal, which definitively establishes that the Legislature has that authority.
In short, DiNapoli and the special interests who make a handsome living off of the Common Retirement Fund (i.e., the investment firms who seek investments from the Fund and the lawyers that seek to represent the Fund in various litigations) are dead wrong that it would take an amendment to New York’s Constitution to remove the Comptroller as the Fund’s sole trustee.
So, whatever happened to the TRUST Bill?
Well, as this blogger explained back in November 2009, despite all the hoopla, the bill was never introduced by any of its supposed sponsors in the New York Senate or Assembly. My own searches in the legislative bill databases have also turned up no record of such a bill ever being introduced in either house of the Legislature.
However, when he was running for New York Governor, Cuomo Pledged to work toward enacting legislation that would accomplish the goals of the Trust Bill.
We’re still waiting Governor!!!