Remember that pension insurance fund story I said to watch a couple of months ago—the one broken by The Boston Globe? It just got a whole lot more interesting.

The initial story was that the director of the Pension Benefit Guaranty Corporation had switched the fund’s investment strategy from safe bonds into stocks, right in the middle of the worst financial crisis in decades. Why’d he do it? To get more risk in the portfolio to try to make up a shortfall, which as I said at the time is the

equivalent to me saying I almost certainly won’t make rent this month, so I’m going to go to Atlantic City and put half my paycheck on the roulette wheel. Seriously, this is genius-level stuff.

Why would the PBGC head, Charles E.F. Millard, do such a thing? That’s where today’s stories come in, reporting on an inspector general’s report. Here’s the Globe’s Michael Kranish, who broke the original story:

The former head of the nation’s pension insurance agency, who last year pushed through a high-risk strategy that shifted the insurance fund heavily into stocks just before the market crash, committed a “clear violation” of agency rules by contacting Wall Street firms that were bidding to oversee the new policy, while also seeking the help of one firm in gaining employment, according to a government report.

Yow!

This stuff is bad enough for Millard:

The pension agency last summer put out bids for contracts to help manage the new policy. Under the rules, Millard was prohibited from contacting the bidding agencies about the contract during a three-month “blackout” period.

However, despite being advised by officials against such contact, “he did not heed these warnings,” the inspector general’s report said.

The agency’s procurement director told the inspector general that she had advised Millard “multiple times” not to have contact with the bidders.

But this is pretty damning:

When the inspector general asked Millard earlier this year about the contacts during the blackout period, he initially denied having the conversations, the report said.

Then, confronted with telephone logs, Millard said he would not have discussed the contracts with officials at the bidding firms.

The Globe’s sister paper, The New York Times, does a good job of adding some more context, reporting this bit of no-good:

Mr. Millard, in some e-mail messages sent during that period, makes clear that he knew the rules prevented him from discussing the contract.

And the NYT reports that Millard’s staff thought he was showing favoritism to his cronies. Like this:

Even before the contest over who would manage the $2.5 billion formally began, executives at JPMorgan Chase offered Mr. Millard advice on how he should draft the official request for bids, sketching out possible questions that the bidders should answer — perhaps giving JPMorgan an advantage as the firm prepared its proposal, the inspector general’s report says.

Add another whiff of corruption:

The report says that Mr. Millard, against the recommendation of agency staff, insisted that he be included on a three-member select committee that would vet the companies bidding to manage funds.

And you have a full-fledged stink bomb.

Guess what—Goldman Sachs is entangled in this:

Shortly after the new investment strategy was adopted in February 2008, Millard began contacts with Wall Street firms that hoped to implement the new policy - even though he was warned by officials that such conversations were not allowed under federal bidding rules, according to a draft report by the agency’s inspector general made public yesterday.

After the agency last fall hired the investment banking firm Goldman Sachs to oversee a $700 million portion of the fund, Millard e-mailed with a Goldman executive about a Wall Street job, according to the report. The Goldman Sachs official responded that he had talked with a person at another firm “who really likes you and if times were better he would have hired you already.” The inspector general reported finding 29 e-mails documenting the effort of a Goldman Sachs official to help Millard “in his search for employment.”

As BusinessWeek says:

Goldman’s supporting role in the inspector general’s report once again highlights that company’s often cozy connections with the halls of government power. Those ties have earned the firm the nickname “Government Sachs,” from the fact that Henry Paulson, President George W. Bush’s last Treasury secretary, once ran Goldman, to the close ties between Goldman and AIG (AIG), and the bank’s receipt of $12.9 billion of AIG’s bailout money. Meanwhile, President Barack Obama received nearly $1 million in campaign contributions from Goldman employees, second only to University of California workers.

Why wouldn’t Goldman, or BlackRock or JPMorgan, want to scratch Millard’s back? He’d just landed them contracts worth tens of millions of dollars.

BusinessWeek scoops that congressional officials are asking for a full-fledged criminal investigation into the matter. This is getting fun.

Finally, a raspberry to the Journal for not seeing fit to put this story in the paper. That’s just really poor news judgment.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.