BROKER CHARGES PENSION FUND STIFFED HER: SAYS SAN FRANCISCO SYSTEM HID ASSETS, TOO

A broker has accused the investment staff of the San Francisco City and County Retirement System of manipulating records, creating secret international stock portfolios and misdirecting brokerage commissions in an attempt to exclude her firm from trading its securities.

The allegations are part of a lawsuit brought by Dawn Clements, president of Western Select Securities Inc., a San Francisco brokerage. The suit was filed last month in U.S. District Court in San Francisco.

Ms. Clements also charges that a member of the pension fund staff made disparaging comments about her that caused her to lose business.

She contends that by failing to trade with he, the pension fund violated the city’s ordinance requiring that it do business with minority- and women-owned companies.

Ms. Clements is seeking $67.5 million in damages. She alleges the defendants violated the Racketeer Influenced and Corrupt Organizations Act, known as Rico.

Defendants include the retirement system and several members of its staff. Other defendants: officials at Nicholas-Applegate Capital Management LP and Dresdner RCM Global Investors LLC, both of which run money for the fund; Asset Strategy Consulting LP, consultant to the pension fund; and Northern Trust Co., the fund’s custodian.

Officials with Asset Strategy Consulting and Nicholas-Applegate declined to comment.

Dan Maguire, deputy city attorney for San Francisco, says “a number of the claims are legally and factually incorrect. We pointed out the most glaring ones to their attorney,” and asked them to consider dismissing the case, or at least paring it down.

The general counsel for Dresdner RCM says the complaint is meritless.

“We are careful to meet our obligations to the San Francisco Retirement System as well as to our other clients with respect to the directing of brokerage,” says Anthony Ain.

Ms. Clements maintains that Carl Wilberg and Richard Piket, both senior investment officers with the plan, intentionally omitted from commission summary reports any reference to a global stock portfolio managed by RCM between fiscal 1997 and fiscal 1999, and an international stock portfolio managed by Nicholas-Applegate for fiscal 1997 through fiscal 1998.

But reports generated by Northern Trust during the same time included both portfolios, alleges Ms. Clements.

“Asset Strategy intentionally omitted any reference to these ‘secret portfolios’ in the ‘asset allocation recommendations’ it prepared” for the pension fund, the suit alleges.

“The secret portfolios improperly reduce the amount of trades in which Western Select…can participate.

“Western Select sought to conduct international brokerage business, but was unable to conduct business on behalf of these concealed portfolios,” she alleges.

Ms. Clements also alleges that the San Francisco fund concealed – from her firm and other minority-and women-owned brokerages -the existence of “large quantities of publicly traded securities” that the fund had in its private equity limited partnerships.

Mr. Maguire says there were no “secret” accounts, adding that information on holdings of the fund is public and reported quarterly.

The system violated the city’s ordinances requiring that it make an effort to do business with minority- and women-owned firms during its hiring of an administrator for a deferred compensation plan, Ms. Clements alleges.

Exempt from Prop 209

San Francisco is apparently exempt from the restrictions of Proposition 209, the state legislation that eliminated taking race and gender into consideration when contracting for services, according to several lawyers queried.

Western Select did not receive notice of a request for proposals for a consultant in December 1997 to select a consultant for the deferred compensation plan, Ms. Clements says in the suit.

Though the company is a brokerage, Ms. Clements says Western Select has consulting expertise and could have conducted the search.

Also, Ms. Clements alleges that Zula Jones, a senior contract compliance officer for the San Francisco Human Rights Commission and a defendant in the suit, said at a Feb. 3 meeting that Aetna Retirement Services, the administrator of the deferred compensation plan, was not in compliance with the city’s ordinances for contracting opportunities for minority- and women-owned firms.

“Western Select had no opportunity to bid for the consultant position to assist in the selection of a plan administrator and Western Select had not had any business in connection with Aetna since its selection as plan administrator, all to the injury of Western Select,” states Ms. Clements.

Crain News Service