A San Diego County pension fund tampered with witnesses in a grand jury investigation into the fund’s operations, the county civil grand jury said in a report released last week. The grand jury found that the pension fund had “impeded” the investigation by “pre-screening” witnesses, perhaps out of concerns arising from its litigation against the hedge fund Amaranth Advisors LLC. The pension fund is suing Amaranth over losses it suffered when Amaranth collapsed after the market in natural gas futures turned against its positions last year.
The grand jury’s report states that the San Diego County Employees Retirement Association, SDERCA, sought to influence witnesses “in almost every area” of the investigation. The civil grand jury in San Diego is made up of 19 volunteers. It is not related to the criminal grand-jury system.
“During the course of our interviews, it became apparent that SDCERCA was pre-screening our witnesses and suggesting what information could or could not be said,” the grand jury report states. The report goes on to detail one instance where an expert witness declined to respond to questions despite the fact that the information was disclosed in public record.
“The efforts of the Grand Jury were, at times, impeded by SDCERA,” the report states as an official finding.
The grand jury’s findings of interference with the investigation contrast with the pension fund’s public statements about the investigation. The press section of the pension fund’s website calls it a “positive report” but makes no mention of the finding that it impeded the investigation. No other media sources seem to have picked up on this finding.
Last Thursday, the pension fund’s chief executive, Brian White, denied that the grand jury’s findings had anything to do with the lawsuit. ``The report did not have any findings in relation to Amaranth or our investments in Amaranth,'' White said, according to Bloomberg. White did not return calls from DealBreaker seeking comment.
[More on pension fund grand jury chicanery after the jump]
The grand jury connects the pension fund’s impeding of its investigation with a law suit the fund has filed against Amaranth. Following a meeting between Amaranth and the pension fund’s investment committee meeting in the summer of 2005, the fund invested $175 in the Connecticut-based hedge fund.
After suffering losses from a complex series of bets on natural gas a year later, the hedge fund was forced to begin unwinding its positions in many investments to meet margin calls. Losses deepened and eventually much of its portfolio was sold off to Citadel and JP Morgan Chase, who had also acted as prime broker for the fund. Those firms eventually recorded profits from buying and trading Amaranth’s positions but it was too late for Amaranth, which was forced to begin dissolving and returning residual assets to investors. Less than a month after Amaranth’s troubles became public, the San Diego pension fund began a lawsuit against Amaranth over the losses.
Last week Amaranth responded to the lawsuit, claiming that the pension fund knew its investments were risky.
The grand jury says that the pension fund made a wrong-turn when it let concerns over its lawsuit with Amaranth interfere with the investigation. “While SDCERA may have had some concern about potential litigation with Amaranth, LLC., this did not justify attempts to influence responses in almost every area of our investigation,” the grand jury report says.
The grand jury declined to recommend any civil penalties or a criminal investigation of the pension fund for the interference. Instead, the grand jury says that the staff of the pension fund should be advised “of the necessity to cooperate with legally constituted investigations.”
The Grand Jury’s foreman, David Higgins, did not immediately return calls seeking comment.
Grand Jury Report [SDCERA]