The New York Times delves into the scandal at the Pension Benefit Guaranty Corporation, whose head greased the wheels for Wall Street and then asked for help finding a job.
The Times got hold of “thousands of pages of email messages and other internal documents”—presumably through FOIA requests, though it doesn’t say—and details how tight the then-PBGC chief, Charles E.F. Millard, was with those he was about to hand lucrative contracts to.
BlackRock, one of the world’s largest money-management firms, assigned a high school classmate of Mr. Millard’s to stay in close contact with him, and it made sure to place him next to its legendary founder, Laurence D. Fink, at a charity dinner at Chelsea Piers. A top executive at Goldman Sachs frequently called and sent e-mail messages, inviting Mr. Millard out to the Mandarin Oriental and the Ritz-Carlton in Washington, even helping him hunt for his next Wall Street job.
Guess who got contracts?
The extensive wooing paid off when a selection committee of three, including Mr. Millard, picked BlackRock and Goldman from among 16 bidders to manage nearly $1.6 billion and to advise the agency, which Mr. Millard ran until January.
I’m surprised that the Times’s Eric Lipton doesn’t mention here Millard’s strange actions involving the selection committee. Here’s what Lipton wrote in May:
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.
Mr. Millard argued that his service on the selection committee was not prohibited by law, and that he followed the rules about not discussing contract details with the bidders while the proposals were being evaluated.
The Times should have pointed this out, however briefly.
But at this point there’s no question of whether Mr. Millard violated the rules about contact with bidders. He did. But what else took place? Why did he insist on being on that selection committee? These are questions we’ll hopefully find out as the investigation unfolds.
Because the Wall Street influence here was over the top. And where there’s political influence being peddled on Wall Street, there’s Goldman Sachs:
Mr. Millard had at least seven meetings with Goldman executives in the year before the bidding started, and 163 phone contacts, the documents show. BlackRock had less frequent contact — 39 phone calls in that 12-month period.
Goldman lent one of its pension analysts to Millard gratis presumably to help develop PBGC’s investment strategy, which would end up proposing to double its exposure to stocks (The NYT short-arms the whole question of the strategy he implemented and the doubts about it). Goldie even helped Millard prepare sound bites to help persuade skeptical Bush administration officials that it would be a good idea to double down on the stock market to try to goose the PBGC’s cash.
George Koklanaris, Mr. Millard’s chief of staff, said in retrospect that the detailed analytical work Goldman did for Mr. Millard, and the repeated contacts, might have created an appearance that Goldman had a competitive advantage.
But BlackRock, which also doesn’t lack for influence with the government, had its own in—Millard’s high-school buddy, David Mullane, who also goes to the same church. This looks pretty nasty:
After a February meeting, months before the contract competition began, Mr. Mullane wrote his bosses: “Money in motion by February.”
And look at this:
As he prepared to open the competition, Mr. Millard, working with Mr. Mullane, sought to restrict the bidders to the biggest players by stipulating that the winner must have thousands of employees and a global operation, e-mail messages show. That decision cut out many boutique firms hoping to compete and gave BlackRock, Goldman and other large firms an advantage. “Neither the company nor any of its employees did anything improper or illegal,” Bobbie Collins, a BlackRock spokeswoman, said.
Why would Millard do that? Well:
While the competition was getting started, Mr. Millard began his job hunt.
He started by contacting Mr. Weinberg of Goldman Sachs, sending him his résumé after meeting with him in New York last June.
Mr. Millard’s e-mail messages show that, while the bidding was under way last fall, he also spoke with Rick Lazio, a former House Republican who is now a senior executive at JPMorgan Chase, to discuss career options.
You’ll not be surprised to learn that JP Morgan was the third company to get in on the contract.
As the Times reports here:
“Both sides should have known better,” said Steven L. Schooner, co-director of the Government Procurement Law Program at the George Washington University, who reviewed some of the material for The Times. “What happened here is wrong, stupid and probably illegal.”
Millard pled the Fifth when he was hauled before Congress in May. It’s not hard to see why.
Good legwork by the NYT, and a tip of the hat to its sister paper, The Boston Globe, which was the first to show there was a need for a closer look at this critical agency.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 firstname.lastname@example.org. Follow him on Twitter at @ryanchittum.