The Texas Teachers Retirement System provides 1.2 million currently employed and retired teachers and public university workers with a safe and secure retirement.
With assets of over $100 million, TRS is the 17th largest public pension plan in the world. Being one of the world’s largest institutional investors makes TRS an attractive partner for investment firms both large and small. Some of these proposed investments are worth the risk, some are not
Recently, the Austin American Statesman reported that in 2009, a high-level TRS whistleblower had alleged that TRS’s chief investment officer and some TRS board of trustee members were pressuring staff to approve dubious investment proposals.
The dubious investments were pitched by big financial supporters of governor Rick Perry. The board members in question were also financial supporters of the governor.
But a TRS spokesperson assured the Statesman that an independent investigation of the whistleblower charges had cleared everybody concerned.
The investigation that cleared everybody was carried out by Roel Campos of the Washington DC law firm Cooley Godward Kornish. But as it turns out, he wasn’t all that independent. He and Cooley have an ongoing contract with TRS for legal services worth $820,000.
Furthermore Campos had a questionable record when it comes to looking into financial investment activity with due diligence.
Campos in 2008 was selected to be TRS’s new fiduciary counsel, an independent attorney that is supposed to ensure that TRS investment decisions are made with the best interest of TRS members in mind, not the private interest of board members or political office holders.
The decision to hire Campos sparked some concern and was canceled after the Texas attorney general found that Campos and Cooley had a conflict of interest because they represented venture capitalist seeking investments from TRS.
Campos had been selected to replace Ian Lanoff, a leading expert on pension governance issues who had served as TRS’s fiduciary counsel for 12 years and who had hoped to be reappointed after his contract expired in 2008.
Campos didn’t get the fiduciary counsel position, but as a consolation prize, he and his law firm landed an ongoing legal services contract.
Campos had no experience as a fiduciary counsel, but he did have political connections. Campos, a Democrat, supported George W. Bush for president. Subsequently, president Bush appointed him to a seat on the Securities and Exchange Commission.
As a member of the commission, Campos demonstrated his lack of investigative skills in one of the most important decisions that the SEC ever made.
At a meeting April 2004, the commission was asked by large investment banks to exempt them from the net capital rule, which requires brokerage firms to keep enough capital in reserve to cover potential losses in the event of a catastrophic market decline.
The large investment banks wanted to free up the capital held in reserve by their brokerage units to invest in mortgage-backed securities, derivatives, and other risky investments.
Financial giants, including Bear Stearns, Lehman Brothers, and Goldman Sachs, sent letters to the commission urging it to grant the exemption. They argued that the net capital rule was unnecessary because markets were self-regulating and it wouldn’t be in the banks’ best interest to make imprudent investments.
There was one dissenter among the letter writers. Leonard D. Bole, a designer of risk assessment tools, said that lowering the capital requirements would “erode the system that has safeguarded US investors.”
Campos and the other commissioners ignored Bode’s warning. One commissioner noted presciently that if anything goes wrong, “it’s going to be an awfully big mess.”
Campos chimed in “I’m very happy to support [the exemption]. And I keep my fingers crossed for the future.”
Unfortunately, the crossed fingers didn’t work. In 2008 after many mortgage-back securities and derivatives turned bad, some banks didn’t have enough capital on hand to cover their losses. Bear and Sterns and Lehman Brothers went out of business, the government bailed out Goldman Sachs, and the economy sank into its worse economic meltdown since the Great Depression.