With Labor Leader on California Pension Boards, Financial Firms Fattened Union Campaign Fund
Update June 15, 2009: This story has been updated with Sean Harrigan's response to the Sacramento Bee
Financial firms showered nearly $1 million in political cash on the United Food and Commercial Workers union in California while a top union leader sat on the boards of big public pension funds in the state, an analysis of campaign finance records shows.
Sean Harrigan, the union's former executive director, is now under scrutiny from the Securities and Exchange Commission, which has charged several firms and individuals with making improper payments to win investments from pension funds in New York and New Mexico.
Harrigan, 62, stepped down from the board of the Los Angeles Fire and Police Pension system last month in response to the SEC inquiry into his dealings while at the fund. He was appointed to the LA fund in 2005 after serving as a trustee and board president at CalPERS from 1999 through late 2004.
His lawyer, Mark Byrne, said in a prepared statement that Harrigan is cooperating with the SEC inquiry and that, "as far as Mr. Harrigan is aware, no one has been provided favorable treatment, or penalized, for giving or not giving" to the union.
Harrigan's union, however, pulled about a third of the $3 million it raised from 2001 to 2006 from players in the financial industry. About $500,000 came from donors who had business dealings with CalPERS, then the nation's biggest pension fund.
Other major unions in California received few, if any, campaign contributions from investment or money management companies, a review of donations shows.
Campaign contributions have figured in a wide-ranging investigation of pension fund kickbacks in New York, where Attorney General Andrew Cuomo issued an indictment naming several prominent investment firms that allegedly took part in a vast pay-to-play scheme.
Among them is Wetherly Capital Group, a Los Angeles firm that earns fees by introducing money managers to pension funds. Wetherly paid Harrigan a consulting fee three years ago, disclosure filings show.
None of the financial companies contacted about the UFCW contributions would comment about their interest in backing workers who ring up groceries and stock supermarket shelves. Nor did union officials respond to repeated interview requests.
The unfolding pension scandal has cast a critical light on how closely systems like CalPERS police themselves and the firms they employ to manage their holdings. State and local government retirement systems in the U.S. hold an estimated $2.2 trillion in assets. Now, the SEC is considering whether to ban financial firms from managing pension funds if they've made recent campaign contributions to trustees.
Critics say such contributions invite cronyism and undermine public trust in the system.
"I think it's corruption," said former California lawmaker Keith Richman, president of the nonprofit watchdog group California Foundation for Fiscal Responsibility. "It is not putting money in the individual's pocket, but it is corruption of our political system."
Firms Hit Up on Harrigan's Behalf
As CalPERS board president from 2003 to December 2004, Harrigan was in a position to influence which investment firms won contracts to manage retirement money, according to present and former CalPERS officials.
Through his lawyer, Harrigan declined to say whether he personally requested donations from those firms for union events. But a document obtained by ProPublica states that "investment partners" had complained to CalPERS about solicitations for the union "on behalf of the Board President."
CalPERS spokeswoman Pat Macht said the $183 billion fund doesn't have a policy restricting political fundraising by board members from firms that have business with the system.
Allison Hayward, a campaign finance specialist at George Mason University School of Law, said reports that third parties asked for contributions on Harrigan's behalf were troubling.
"You don't have to explain that (investment firms) are going to be at a competitive disadvantage if they don't contribute," she said. "The implication is, 'Nice business you have here. Shame if something were to happen to it.'"
While on CalPERS' board, a volunteer job, Harrigan served as the UCFW's executive director and international vice president and was paid about $195,000 annually, according to disclosure forms. By 2007, he had retired from both union positions.
Harrigan remains a member of the State Personnel Board, where he earns a salary of $40,670. Among other duties, the personnel board is responsible for filling one of the 13 CalPERS board positions.
Harrigan's tenure at CalPERS overlapped with one of his union's biggest election battles.
Proposition 75 on the 2005 ballot would have required member consent before unions could spend dues on political campaigns. The UFCW, squaring off against against Gov. Arnold Schwarzenegger and corporate backers, spent nearly $1 million to defeat the measure.
About half of the $1 million in finance sector contributions the union’s PAC received from 2001 through 2006 came from firms that had investments or had other contracts with CalPERS, as listed in the fund’s annual reports.
Among the contributors was Wetherly Capital, which has figured in Cuomo's investigation of abuses at the $122 billion New York retirement fund. Investigators have said Wetherly split fees from pension deals with Hank Morris, a political consultant charged with taking kickbacks.
The SEC has inquired (PDF) about Wetherly's relationship with Harrigan. The company's founder, Daniel N. Weinstein, knew Harrigan from his days as a political consultant to the UFCW in the early 1990s. Wetherly also paid an undisclosed amount to Harrigan's consulting business in 2006, according to a disclosure form filed filed by Harrigan.
Wetherly contributed $35,000 to the union's PAC between 2002 and 2006, and the firm's clients gave $162,000, records show. Companies represented by Wetherly have won nearly $1.5 billion in investments from CalPERS since 2001, when Wetherly was formed.
In a prepared statement, Weinstein said he remains a member of the UFCW and has helped raise money for the union "from companies in sectors such as health care, accounting and insurance." He declined to say whether he solicited firms hoping to manage CalPERS money.
Votes at the LA Pension Fund
During his time on the LA fire and police pension board, beginning in October 2005, Harrigan voted at least 17 times on decisions involving companies that had given to the UFCW.
In early 2008, he voted to put Barclays Global Investors on a short list of candidates to manage fund investments. The firm gave a total of $10,000 to the UFCW PAC from 2001 to 2005.
Harrigan also voted in favor of $105 million in placements with five other union contributors, including a Los Angeles company called ITU Ventures. That company gave $3,000 to the UFCW fund in August 2005, just a week after Los Angeles Mayor Antonio Villaraigosa announced Harrigan's appointment to the board.
The LA fund's other investors pulled their money out of the ITU investment after the Los Angeles Times reported in 2006 that company executives had encouraged clients to contribute to the campaigns of CalPERS board members, including former California Controller Steve Westly, then running for governor against fellow CalPERS board member, Phil Angelides.
Twice at the LA board, Harrigan recused himself from votes relating to contributors.
He declined to vote in 2007 on whether the board could accept gifts of food and drink from the Yucaipa Companies. Yucaipa -- a major money manager for the fund -- contributed $60,000 to the union PAC from 2002 to 2006.
Yucaipa has a variety of influential connections: It employed Wetherly as a consultant, and its founder, Ron Burkle, is a California billionaire who is close to President Clinton and was a major backer of former Democratic Gov. Gray Davis.
Harrigan disclosed a "potential equity interest" in the company on ethics forms filed with the city in 2007. The documents do not make clear whether this interest was ever realized.
Harrigan also recused himself from voting on a $30 million commitment to another Wetherly client, the CIM Group. The real estate firm handles investments for CalPERS and the $117 billion California State Teachers' Retirement System.
Harrigan told the Los Angeles board his relationship with Wetherly created a "possible conflict," and left the room during the July 2007 vote, according to minutes of the meeting. Between 2002 and 2006, CIM Group gave $48,000 to the union’s PAC.
Reforms Still Leave Loopholes
Reform advocates say that even if there are no kickbacks or favors, the appearance of possible bias can sap public confidence in pension investments. Sixteen states already ban investment firms from giving campaign cash to pension fund officials, according to a survey by the Washington office of the Skadden, Arps law firm.
In New York, attorney general Cuomo last week reached a $30 million settlement with the private equity firm Riverstone Holdings. Among other things, Riverstone employees made $40,000 in contributions to the campaign of former Comptroller Alan Hevesi. The comptroller's office in New York has sole authority over state pension system investments.
Under the settlement, Riverstone signed a code of conduct that forbids financial firms from doing business with the New York pension fund for two years after making a campaign contribution to any elected or appointed fund official who makes investment decisions.
The rule being considered by SEC would impose a similar two-year ban. By contrast, a reform measure introduced in the California State Assembly only requires firms to disclose such contributions.
Neither the SEC nor Assembly bill would block pension officials from soliciting campaign contributions or prevent a donor from contributing at arm's length, say to a trustee's union.
Such loopholes make it inevitable that donors will find ways to circumvent the spirit of the rules, said to Edwin Bender, executive director of the National Institute of Money in State Politics.
"If they're doing contributions to so-and-so's friend, who may give that contribution to a PAC, then that just doesn't work," he said. "It is almost a money laundering process."
Update (June 15, 2009): In a Sacramento Bee story published Sunday, Harrigan confirmed that he had solicited contributions for the union from "not more than two dozen" financial firms while at CalPERS, but he said it did not influence his decisions on investments. "The issue was totally lawful,'' he told the Bee.
Harrigan told the Bee that he and other UFCW officials had he requested contributions from financial firms and companies that were seeking real estate, consulting and other professional services at CalPERS.
"There was never any retribution to people who chose not to participate, and there was no impact on strong relationships I had with people who chose not to participate," Harrigan told the newspaper.
Researchers Kitty Bennett, Lisa Schwartz of ProPublica, and intern Olga Pierce of ProPublica contributed to this report.