Missouri employee pension says firm had lobbyist, lawmaker apply pressure on lawsuit
A Canadian private equity firm accused in a lawsuit of mishandling investments by Missouri’s largest public pension hired a lobbyist to influence key legislators and put pressure on the pension outside of court proceedings, a top pension official claimed in testimony last week.
Catalyst Capital Group hired Missouri lobbyist Richard
McIntosh after the Missouri State Employees’ Retirement System sued the firm in
October. Ronda Stegmann, MOSERS executive director, testified in a court
hearing that McIntosh then tried to set up a meeting with Stegmann, two
legislators and Catalyst executives.
Companies routinely hire lobbyists to influence lawmakers on
legislation and policies they consider. Less common is the involvement of a
lobbyist around ongoing litigation.
Stegmann said in the court hearing that Rep. John Riemann,
House Speaker pro tem and a member of the pension’s board of trustees, called
her in late October.
Wiemann told her he had received a call from McIntosh asking
about the lawsuit. The next day, McIntosh called again to invite Wiemann to
attend a meeting in early November in the office of Sen. Bob Onder, the
chairman of the Senate Health and Pensions Committee, and executives of
Catalyst Capital Group.
Stegmann testified that she, too, received a call from
Onder’s office, asking her to attend the same meeting.
Those phone calls came days after MOSERS sued Catalyst for
steering investments into a troubled lending business, marking a rare step for
the $8 billion pension that pays benefits to more than 51,000 retirees from
Missouri state government.
Stegmann and Wiemann both declined to attend the meeting,
citing the existence of the lawsuit. Typically parties involved in litigation
do not speak with one another outside of court proceedings, except through
their attorneys of record.
“I don’t want to say what he did was appropriate and I don’t
want to say what he did was inappropriate,” Wiemann said. “What he did when he
called me was not illegal. He certainly can call me. When I told him I couldn’t
talk about it, that was the end of the conversation.”
While the meeting never occurred, Onder in December wrote a
letter to Stegmann, quizzing her about MOSERS’ legal strategy and asking to see
the itemized legal invoices it was sending to the law firm representing the
pension. Onder said Catalyst had also offered to let him review a sealed
document filed in the lawsuit that represented the private equity firm’s account
of the issues in the case, and requested MOSERS’ permission for Onder to see
it.
Stegmann testified that she was not keen on letting Onder
see the itemized legal bills because she said someone could get a sense of
MOSERS’ legal strategy. She replied to Onder that she would agree to Catalyst’s
offer to view the sealed document only if MOSERS could brief Onder on its side
of the case.
Stegmann said the lobbying put her in an “impossible
position.” She said she would ordinarily meet with Onder, whose position on the
Senate pension committee gives him influence over MOSERS. The pension also
tries to maintain close ties with lawmakers because it relies on funding from
the Missouri General Assembly — more than $32 million in 2020 alone — to fully
fund the pension.
But the lawsuit prevented that, she said.
“It troubled me that he (Onder) was getting this information
and there was pressure being put on us because we like to operate in a method
of transparency and communication with Missouri General Assembly members,”
Stegmann testified. “And this put us in an impossible position to do that.”
Onder, a Lake St. Louis Republican, did not respond to a
message left with an aide seeking an interview.
McIntosh did not respond to an email with questions about
his lobbying activities.
McIntosh, a prominent lobbyist in the halls of the Missouri
Capitol, last year pushed lawmakers to make changes to how state universities
handle violations of Title IX, a federal law barring gender discrimination and
establishing how universities police allegations of sexual violence. Critics of
the proposed changes said they would shift power in favor of the accused and
make victims more reluctant to come forward.
The Star reported that McIntosh’s son had been expelled from
Washington University in St. Louis as a result of the school’s Title IX
process. One of the proposed changes that McIntosh pushed for would allow
students to appeal Title IX sanctions to the Missouri Administrative Hearing
Commission, where McIntosh’s wife is the presiding commissioner.
Catalyst said it didn’t hire McIntosh to interfere with
litigation, but rather to discuss what it said was troubling decisions that
MOSERS appeared ready to take.
Rocco DiPucchio, Catalyst’s managing director, testified
last week that he was alarmed to learn that MOSERS had just $4 million of free
cash available at one point last year. He said MOSERS had $40 million in
outstanding commitments to Catalyst.
DiPucchio also said that MOSERS last year considered not
meeting a capital call, which is when an investment firm can demand funding
that an investor had previously committed to making. Missing a capital call can
result in a default, which could have hurt MOSERS’ credit rating and reputation
in private equity markets.
MOSERS ended up making a $15 million capital call in
November.
“We felt very strongly that the staff at MOSERS had not
fully taken into account the impact that the action was going to have on plan
members,” DiPucchio testified.
Larry Friedman, a Thompson Coburn attorney representing
MOSERS, said at the hearing that Catalyst has “engaged in a pattern of
misconduct” and that the pension concluded that it cannot trust Catalyst with
its investments.
Friedman referred to information about alleged Catalyst
attempts to influence litigation elsewhere, outside the courtroom.
Catalyst, according to published reports, was tied to an
unsuccessful scheme by Israeli intelligence firm Black Cube to have its operatives
covertly bait a Canadian judge into making anti-Semitic remarks. That judge had
presided over a long-running lawsuit involving another Canadian asset manager
and the scheme was said to have been an effort to show that the judge was
biased against Catalyst, whose founder Newton Glassman is Jewish.
Black Cube is the firm hired by disgraced film mogul Harvey
Weinstein to undermine actresses who came forward with allegations that he
sexually preyed upon them.
Catalyst would not answer questions by The Star about Black
Cube or the MOSERS litigation. Catalyst’s attorney, Chuck Hatfield, objected to
the Black Cube references by Friedman, calling the discussion “patently unfair
to us.”
Catalyst’s troubles in Canada surfaced publicly in 2016 and
2017. MOSERS declined to answer questions from The Star, citing the ongoing
lawsuit, about whether it monitored its investment advisers like Catalyst, and
why the controversies it pointed out in its lawsuit didn’t prompt MOSERS to act
sooner.
MOSERS did not answer most other questions about its
financial condition.
Stegmann in her testimony acknowledged that MOSERS could not
have covered a capital call on a cash basis when it had $4 million in cash,
although she said the pension could have used other liquid investments to cover
a capital call.
Catalyst’s DiPucchio said that “raises a very significant
concern in my mind.”
“It means fundamentally that you have to liquidate other
positions to fund commitments,” he said.
MOSERS said that at the time it had $4 million in cash, it
also had investments in cash equivalents, custodial bank cash and currency
worth more than $2 billion.
“I have not had any concern at this point in time that
MOSERS would be unable to meet its financial obligations, period,” said
Wiemann, the House representative on MOSERS’ board of trustees.
He allowed that MOSERS faces some difficulties that also
face other state pension systems.
MOSERS has been through three different chief investment
officers since 2015. Its assumed rate of return on investments has declined. In
fiscal year 2020, that rate was 6.95%, according to its annual financial
report, down from 7.65% in 2016.
“Every time you lower that assumed rate, that makes the
obligation for the state of Missouri go up,” Wiemann said. “So the state has
had to put more money into the pot.”
In 2019 MOSERS was 63% funded, a figure that represents the
assets it has to pay benefits to current and future retirees.
In general, pensions 70% funded or higher are considered
above average, while those below 60% are considered in a weak position,
according to Fitch ratings.
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