By Katie Drews/BGA
Spending roughly three hours at a public board meeting of the Metropolitan Water Reclamation District Retirement Fund, listening to various financial reports, is about as dry as it gets.
Larry Gray, president of Gray & Co., the MWRD retirement fund’s investment consultant that is currently under SEC investigation, attended the Nov. 20 public board meeting to address allegations surrounding his firm.
But the Nov. 20 meeting on the 7th floor of 111 E. Erie St. provided a little more intrigue than normal with a visit by Larry Gray, the fund’s investment consultant who’s been caught in a brewing controversy over conflicts of interest and other transparency issues – as well as an investigation by the U.S. Securities and Exchange Commission.
As the Better Government Association previously reported, Gray is the founder and president of the financial advisory firm Gray & Co., which helps oversee about $1 billion in assets for the MWRD pension fund. Essentially, the company helps the fund’s board of trustees decide how to invest money. The investment profits, in turn, are used to help pay the retirement income for about 2,300 former government employees and families. (The MWRD is a taxpayer-supported agency that handles sewage treatment and floodwater control for much of the Chicago region.)
In the latest development on Gray & Co., Gray admitted while fielding questions from trustees that he failed to properly notify the MWRD fund about the SEC investigation. According to his contract, Gray was required to tell the board about the SEC probe within five business days of its initiation. Gray, however, didn’t provide notification until months after the SEC probe began.
“It’s plain and simple, absolute oversight mistake on our part,” Gray said at the meeting. “When this happened back in June we had our compliance team go through all of the contracts to make sure we were in compliance, and I’m hugely apologetic and sorry to say that they missed that clause in yours. The other clients were notified who have that clause in it. You were not. So we are guilty as charged on that.”
Gray also told the board that he recently resigned as investment consultant to three Atlanta public-sector pension boards and was considering resigning from three other places where his firm serves a dual role as both adviser and money manager.
But he insisted his company has not been adversely affected.
“There is absolutely no negative impact on the organization from, say, a year ago to now, even with these resignations,” Gray said.
He further emphasized that the firm’s “competency is in consulting” and that financial advising would still remain the company’s priority.
“I love consulting. My heart is there,” Gray said.
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Troubles with Gray’s firm initially surfaced after board members of an Atlanta pension fund complained that he advised the board to invest money into a private fund owned by Gray & Co. allegedly without adequate disclosure.
More potential disclosure problems followed after it was discovered Gray had $425,000 in tax liens, as well as a $1 million lawsuit settlement, that were never reported to regulators or to clients.
Gray has disputed the allegations.
Gray also advises the pension and health funds for the CTA.
Click here and here for related articles by the BGA.
Currently, Gray & Co. is still on the payroll for $170,000 a year with the MWRD fund. Board members have remained tightlipped, at least publicly, about what they think or what they will do next.
At the most recent meeting, the trustees spent more than an hour in closed session “for personnel matters” and at one point – after Gray began speaking and the BGA began rolling video – Board President Joseph Kennedy called for a five-minute recess and left to speak with someone in the hallway but did not say why.
In the end, the board took no action.
The fund’s executive director, Susan Boutin, has not divulged much either, but previously told the BGA her agency “will continue to monitor the situation.”
The BGA will also continue to monitor things. Stay tuned for more dredging.
This blog post was written and reported by the Better Government Association’s Katie Drews, who can be reached at (312) 821-9027 or kdrews@bettergov.org.
