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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

Two former TRS attorneys with decades of experience at the fund also raised questions about TRS's internal probe and its decision to hire Democrat Roel Campos, a former commissioner on the Securities and Exchange Commission with the powerful Cooley Godward Kronish law firm. Campos' nine-page report (PDF) ultimately dismissed all of Green's most serious allegations. (Campos did recommend that TRS beef up its ethics rules and "improve communications" between staffers like Green and TRS higher-ups, which the fund agreed to do.)

Hiring an outside attorney, in theory, created the appearance of independence. But Campos came with baggage. The year before, he sought employment—at $950 an hour, no less—as TRS's fiduciary counsel, ensuring that trustees and investment staffers do their due diligence and get the most bang for beneficiaries' bucks. His bid for the gig was derailed by Texas GOP state Sen. Robert Duncan, who discovered that many of Campos' and his firm's clients were from funds competing for TRS cash, creating a major conflict of interest.

How, then, could Campos really be independent in his investigation into Green's memo? His hiring "raised red flags," says former TRS general counsel William Baker. "I would not have pursued hiring him myself, and I would not have recommended hiring him." (Campos, who has since moved to a different law firm, did not respond to multiple requests for comment.)

Critics also took issue with Campos' report for its lack of rigor. Ian Lanoff, a leading pension fund expert who was TRS's fiduciary counsel for 12 years before the Green controversy, dismissed it as a "so-called investigation." Paul Burka, the senior executive editor of Texas Monthly, slammed the report as "pablum," writing, "It makes no effort to deal with the details of Green's memo." 

Baker, too, says Campos' report fell short of what he expected from a veteran attorney, suggesting Campos glossed over potential problems during the investigation. "When I looked at [Campos' report]," he says, "I was not impressed with it."

A spokeswoman for TRS, Juliana Fernandez Helton, wrote in an email that TRS saw no conflict hiring Campos to investigate Green's allegations. "As a former federal prosecutor, former SEC Commissioner, and a licensed Texas attorney, Mr. Campos had outstanding credentials and experience, and he carried out his responsibilities in an independent and impartial manner," she said.

Board Games

Perry has a history of appointing donors and allies to state agencies, boards, and commissions. According to Texans for Public Justice (PDF), 21 cents out of every dollar in the $83 million Perry raised between 2001 and June 2010 came from his own appointees or their spouses. TRS is no exception.

When Rick Perry began his first term as governor in December 2000, only one of TRS's nine governor-appointed trustees had clear political ties—and that was to Gov. Ann Richards, George W. Bush's predecessor. Since then, TRS's board has included a half-dozen Perry donors who, over the past decade, have worked on his reelection campaigns and given him more than $150,000. Three of them have chaired the TRS board.

The money trail between Perry and TRS went beyond the boardroom.

In 2002, Perry directly appointed Houston attorney Jarvis Hollingsworth to the TRS's board, and in 2005, Perry made the unusual move of replacing existing chair Terence Ellis, who was not a Perry appointee, with Hollingsworth—before Ellis' term was up. Hollingsworth gave Perry $15,100 in campaign contributions between 2002 and 2010.

In March 2006, Perry named Jim Lee, a key member of his reelection finance team, to the TRS board; he did the same in November 2007 with R. David Kelly, another campaign financier. A few months later, Perry promoted Jim Lee to chairman of TRS's board and also personally appointed Robert Gauntt, an investment manager, to the board. Gauntt had given Perry $5,000 in campaign donations before his appointment, and would give Perry $65,000 more in the next two years. In October 2009, Perry used another direct appointment to add Todd Barth, a real estate executive who donated $16,500 to Perry before his appointment and $10,000 shortly thereafter.

And as early as last month, Perry extended Kelly's tenure on the board and appointed Joe Colonnetta, a Dallas investor, to the board. Colonnetta gave Perry almost $50,000 between November 2008 and September 2010.

In September 2008, Perry-appointed board members selected Brian Guthrie, a Perry staffer, as TRS's new deputy director. The move raised eyebrows because it appeared to overlook TRS's chief operating officer, Pattie Featherston, who had been in line for the job after more than three years at TRS.

Perry's choice of Jim Lee as TRS chair was, in retrospect, a dubious one. As a fundraiser Lee was prodigious; Perry even loaned Lee to Rudy Giuliani's 2008 campaign to help rake in cash. But the board chafed under Lee's combative management style. After 10 months in charge, Lee unexpectedly resigned amidst media reports that he'd defaulted on $110,000 in gambling debts owed to the Bellagio in Las Vegas. (TRS said Lee left to "pursue a new business venture.") No matter: Perry soon booted Lee's replacement from the chairman's seat, a veteran public school teacher and superintendent named Linus Wright, without giving a reason. The new chair, Perry announced, would be R. David Kelly, a top financier on his reelection campaign. (Kelly is the chair today.)

Perry's other appointees to the TRS board appeared to cause conflict. In February 2008, Mark Henry, a school superintendent and TRS trustee, wrote in an email to Hollingsworth that a rift had opened between Perry's allies and the rest of the board. "Jarvis I believe that there are two boards," Henry wrote. "One that functions in the light of day and one that meets with staff to make decisions, then secures enough votes and has no concern about the opinions of a few of us."

The money trail between Perry and TRS went beyond the boardroom. Several investment firms mentioned in Green's memo—the firms TRS executives pressured employees to rally behind despite their objections—were run by deep-pocketed Perry donors, according to Texas campaign finance records. Gary Petersen, managing director at EnCap Investments, a private equity firm specializing in oil and gas investing, showered Perry with $605,500 in donations between 2003 and 2010. Another principal at EnCap, David Miller, gave Perry $25,000 in June 2010.

Tom Hicks, founder of HM Capital Partners, a national private equity firm cited in the Green memo, gave Perry $86,000 in 2009 and 2010. Ex-HM partner Charles Tate gave Perry upwards of $300,000 between 2000 and 2010. Another company in the memo was private equity firm Lee Equity Partners, whose founder, Thomas H. Lee, donated $5,000 to Perry in 2008.

And Perry himself has been criticized for angling to use money from TRS and the state employees' retirement system for state transportation projects like toll roads. TRS officials countered that toll roads aren't necessarily a smart investment, and that any pressure to invest in state projects could break with their responsibility to maximize returns for retired teachers.

A Perry spokesman did not respond to multiple requests for comment.

The political patronage at TRS aligns with what's gone on under Perry at the state's main economic development funds, the Emerging Technology Fund and Texas Enterprise Fund, as well at other state agencies and commissions, says Andrew Wheat of Texans for Public Justice. "This is one of the real crony capitalist states in America," he says. "It's all very cozy and it all works out very well for everyone, except for the taxpayers and the public."

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