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Wall Street Wants to Make It Illegal for You to See What It's Doing With Public Money — And North Carolina Wants to Help Them

Photo by Cory Doctorow.
Photo by Cory Doctorow.
By David Sirota
In the last few months, there has been increasing pressure on public officials to stop hiding the basic terms of the investment agreements being cemented between governments and Wall Street’s “alternative investment” industry.

That pressure has been intensified, in part, by two sets of recent leaks showing how these alternative investment companies (private equity, hedge funds, venture capital, etc.) are using the secret deals to make hundreds of millions of dollars off taxpayers. It is also in response to the Securities and Exchange Commission recently declaring that many of the stealth schemes may be illegal.

And yet, as the demands for transparency grow louder, a potentially precedent-setting push for even more secrecy is emerging. Pando has learned that legislators in North Carolina — whose $86 billion public pension fund is the 7th largest in America – are proposing to statutorily bar the public from seeing details of the state’s Wall Street transactions for at least a decade. That time frame is significant: according to experts, it would conceal the terms of the investment agreements for longer than the statute of limitations of various securities laws.

In other words, the legislation – which could serve as a model in state legislatures everywhere – would bar the disclosure of the state’s financial transactions until many existing securities laws against financial fraud become unenforceable.

A growing scandal in North Carolina

If the North Carolina Retirement System and its sole trustee, Treasurer Janet Cowell (D), seem familiar to tech readers, that is because the NC system is one of the lead plaintiffs in the class action suit surrounding Facebook’s initial public offering. Additionally, as part of her career in the financial sector, Cowell was the marketing director for the tech-focused VC firm, SJF Ventures.

Like other states, North Carolina has been redacting and/or refusing to release the contractual terms of its pension fund’s massive Wall Street investments, even though the contracts involve public money and a public agency. In recent months, that practice exploded into a full-fledged political scandal when the State Employees Association of North Carolina released a 147-page report from former SEC investigator Ted Siedle.

The report asserted that under Cowell, up to $30 billion of state money is now being managed by high-risk, high-fee Wall Street firms, and that the state could soon be paying $1 billion a year in fees to those firms. The report also noted that the investment strategy “has underperformed the average public plan by $6.8 billion” and it alleged that Cowell has misled the public about how where exactly she is investing taxpayer dollars. The union has called for a federal investigation, while Cowell has publicly denied the allegations.

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