Councilman Watson Resigns from Pension Board as SEC Investigates
(APN) ATLANTA — Atlanta City Councilman Aaron Watson (Post 2-at-large) has resigned from the Board of Trustees of the City of Atlanta General Employees Pension Fund, as the US Securities and Exchange Commission investigates a complaint filed by Board Member Angela Green regarding a controversial investment that Watson approved and later defended.
“As discussed with you, I must conclude my term effective immediately,” Watson wrote in a letter dated March 18, 2013, to Mayor Kasim Reed; however, Green says that the letter was not presented to the board until its April 2013 meeting.
As previously reported by Atlanta Progressive News, Green filed a complaint on January 18, 2013, with the SEC, complaining that the investment consultant for the Pension Fund, Larry Gray, steered some 28 million dollar investment from the Pension Fund into a hedge fund–GrayCo Alt II–that his company, Gray & Company, owns, without full disclosure to the Board of the conflict of interest.
On March 06, 2013, Councilman Watson co-introduced a resolution to clarify that the Board was not in support of the SEC complaint, according to meeting minutes obtained by APN.
“WHEREAS, it has been reported that Ms. Angela Green, an elected trustee of the City of Atlanta General Employees’ Pension Fund, has filed a complaint with the U.S. Securities and Exchange Commission…” the resolution states, referring to the article by APN.
“Any action or actions taken by Ms. Angela Green regarding an alleged complaint filed with the U.S. Securities and Exchange Commission on January 18, 2013 were taken by Ms. Green as an individual and not on behalf of the Board of Trustees of the City of Atlanta General Employees’ Pension Fund,” the resolution states.
Councilman Watson had co-introduced the resolution along with Commissioner of Human Resources Yvonne Yancey.
Meanwhile, the SEC continued its investigation. According to Green, the SEC has contacted Mr. Gray about the complaint.
Also, BNY Mellon, which serves as custodian bank for the Pension Fund, also was contacted by the SEC for information, according to an email forwarded to APN, dated April 02, 2013.
“The Securities and Exchange Commission regularly requests basic information about our clients’ accounts such as the total account value and frequency of report distribution to clients. They recently asked us to provide account balances for accounts managed by Gray and Co., which includes account AT9F5002002 as of 12/31/2012 and 02/28/2013,” Diana Bellini of BNY Mellon wrote in an email to Alfred Berry, Chairman of the Board of Trustees, and Policy Analyst for the City Council.
“This is a standard request that we receive with some frequency. Do you approve of us releasing this information to the SEC? We will not release the information without your approval,” Bellini wrote.
Berry replied that BNY Mellon could release the information requested by the SEC.
Green tells APN that in her twenty years on and off the pension fund board, that she had never seen the custodian bank receive a request for information like that from the SEC, despite the fact that the bank characterized it as a routine request.
At the November 07, 2012 Meeting of the Board of Trustees, Mr. Gray presented to the Board several alternative investments for the Board to consider, one of which was a company called GrayCo Alternative Partners II, LP.
As it turns out, the sponsor of “GrayCo Alt II” is Gray & Company, the same company that provides consulting services for the Pension Fund. Larry Gray is the President and CEO of Gray & Company.
The Board voted seven to two approve the contract, with Angela Green and Greg Nash voting against, according to the November 07, 2012 meeting minutes obtained by APN.
All other members voted for it, including Berry; Jim Beard; Yancy; Yolanda Johnson, Atlanta Public Schools Board of Education Member; Aretha Sumbry-Powers; Douglas Strachan; and Atlanta City Councilman Aaron Watson (Post 2-at-large).
Berry, who later learned that Gray & Company was the sponsor of GrayCo Alt II, later asked to change his vote at the December 05, 2012 meeting, those minutes show.
Gray & Company implicitly admits to not letting at least certain Board Members, or the Board as a whole, know of the conflict of interest between the two entities.
“My investigation into this matter has revealed that Larry Gray, President and Chief Executive Officer of Gray & Company, personally disclosed that Gray & Company is the sponsor of GrayCo Alt II to at least five other Board members directly in multiple in-person meetings and by telephone last fall and winter,” Marc Hardy, Chief Compliance Officer for Gray & Company, wrote in their letter dated January 23, 2013, to Green, in which they respond to a letter she sent them on January 08.
“Although I understand that Mr. Gray may not have conferred with you personally on this matter, I submit that the multiple disclosures to these other Board members establishes that there was no omission or deception in connection with Gray & Company’s submission of GrayCo Alt II to the Board,” Hardy wrote.
“Finally, it has come to our attention that you may have been sharing your concerns about GrayCo Alt II with others. We are concerned that you are conveying false information about Larry Gray, Gray & Company, and/or GrayCo Alt II, and impugning our sound reputation and good will. We respectfully request that you refrain from any such activities,” Hardy wrote.
According to Green’s January 08 letter to Hardy, during the meeting there the investment was approved, “We asked about a presentation from the Core Alts II Fund.”
According to the November 07, 2012 minutes, “In response to questions, Mr. Gray stated that… highly sought after managers in this space typically do not make client sales presentations; generally prospective investors make application to become an investor in these private partnership investment vehicles.”
Such a statement by Gray was deceptive because clearly as the CEO of the company sponsoring the fund, Mr. Gray should have been able to answer questions about the fund to the Board, instead of implying that someone else had the information and that it would be improper to request for that someone else to make a presentation to the Board.