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How Rick Perry Put Teacher Retirement Money in His Cronies' Hands

New evidence suggests the Texas governor relied on flawed investigations to bury a potential pension-fund scandal.

| Thu Sep. 15, 2011 5:00 AM EDT
Texas Gov. Rick Perry.

On October 19, 2010, shortly before Texans voted to elect their governor, Democratic candidate Bill White took aim at Republican incumbent Rick Perry with what he called a "smoking gun." He revealed a leaked internal memo written in 2009 by Michael Green, an investment director-turned-whistleblower at the state's $100 billion public-teacher pension fund, the Teacher Retirement System of Texas. The memo accused TRS brass and Perry-appointed trustees of pressuring employees to violate ethics rules and possibly state law by reversing negative outlooks to positive ones on a slew of questionable investment deals. As it turned out, big-time Perry donors ran many of the investment funds cited in the memo. It was, White claimed, a classic case of crony capitalism, and it merited an independent investigation.

The memo sparked a brief media firestorm, but Perry soon squashed the controversy. He pointed to probes by TRS and a Travis County district attorney, both of which found nothing wrong, as proof that Green's memo and White's claims were much ado about nothing. "There is no 'there' there," he said. There would be no new investigation, and with that the scandal vanished. Perry cruised to a third term as Texas' longest-serving governor.

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But now, Michael Green's first-ever public comments on the case since blowing the whistle, as well as interviews with former TRS attorneys, suggest a troubling picture: It appears Perry relied on deeply flawed investigations to sweep a potentially embarrassing controversy under the rug. Additionally, interviews with former TRS employees and a review of state records show how Perry politicized the state teachers' fund by stacking its board with political allies and donors—appointees who allegedly have promoted investment funds connected to Perry.

In the case of the Travis County DA, Green says the attorney investigating never once contacted him during the months-long probe before closing the case. "They dropped the ball," Green told Mother Jones. "I just don't believe they did any serious investigating."

As for TRS's internal probe, the fund hired an attorney whose conflicts of interest with TRS had derailed him from a previous job with the fund, and whose report has been criticized publicly as superficial and inadequate by two former TRS attorneys.

Andrew Wheat, research director at Texans for Public Justice, a nonprofit group that tracks the flow of money in Lone Star State politics, says the GOP presidential contender's handling of his state's largest retirement fund, which has more than 1.3 million members, speaks to Perry's broader governing style. "The governor has a very strong stomach for the appearance of impropriety," he says. Perry's support for political donors and allies, Wheat adds, makes for "an astonishing patronage system."

The Investigation That Wasn't

Green, then a director of TRS's private-markets division, fired off his memo to TRS higher-ups in April 2009. He made no mention of politics, but described how investment employees felt pressure from Perry-appointed board members to favor funds with ties to Perry donors. (The Texas governor appoints all nine members of the board of trustees; three by direct appointment, the others at the recommendation of local and state education officials.) Green wrote that Britt Harris, TRS's chief investment officer, had been "manipulated by Board members and investment managers to the detriment of TRS's beneficiaries." Green alleged that on numerous occasions Harris told him, "I manage a fund with billions of dollars in assets—upsetting a board member or friend of the fund over the investment of a few hundred million dollars doesn't make sense."

The blowback was swift. Green was put on leave with full pay and benefits and later left the fund for good.

"Nobody would ever do a serious investigation without talking to the complainant witness."

Green later met with an attorney and investigator with the Travis County DA's office, a preliminary meeting where he laid out his allegations. They told him his case was a serious one, he says, and that they'd contact him for more information.

But they never did, Green says. "The Travis County DA's office made no attempt to follow up with me after our initial meeting until after they sent me a letter saying the case was closed," he says. Green even offered to turn over his phone records as proof that the Travis County DA never called him back prior to its determination that it had found no criminal violations. (Green declined to comment on the record about the contents of his memo and his time at TRS for fear of retribution in Texas' finance industry, in which he still works.)

Gregg Cox, an attorney who heads the Travis County DA's Public Integrity Unit, which handled the investigation, disputes Green's version of events. He says staffers tried to contact Green on multiple occasions, but Green never called back. "He failed to give us enough information to substantiate his allegations," Cox says, "and he failed to provide us with additional information to allow us to go forward, so the investigation was closed after some attempts to try to corroborate what he said." Cox declined to provide investigators' notes or other records of the calls, citing the possibility that new evidence could surface and the case could potentially be reopened. 

Green also points out that the day his memo became public he did finally receive a call from the head of the Travis County DA's office, demonstrating their ability to reach him. Cox confirmed that call took place.

William Black, an expert in financial crime at the University of Missouri-Kansas City, says that if Green's account is accurate, then the DA's probe was "a farce." Follow-up conversations are essential to investigating complicated financial issues, he explains, not only for additional information and clarification but also to gauge the credibility of a whistleblower. "Nobody would ever do a serious investigation without talking to the complainant witness and without following up," Black says.

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