Will This Cover-up Sink the Treasurer?
What may possibly be a major financial blunder followed by what is clearly a cover-up is likely to affect the 2010 race to fill President Barack Obama’s senate seat—and perhaps other seats down the ballot.
Riding high in the Democratic primary polls at present is Illinois Treasurer Alexi Giannoulias, the president’s youthful basketball-buddy banker. Millionaire Giannoulias waltzed into the treasurer’s office in 2006 by investing several of his millions in a television spot featuring then-Senator Obama.
Having served nearly a full term in that relatively low-profile office, he decided to leapfrog into the United States Senate, where Roland Burris is working as a temp.
It’s hard to really screw up being state treasurer, but Giannoulias and his handpicked crew managed to do so, big time.
No, they didn’t embezzle or pocket any “tips,” as you would expect of your basic Illinois politician. They just managed to lose millions of dollars belonging to thousands of middle-class families who were investing to send their kids to college. Then they withheld the truth about how much was lost and the percentage to be recovered.
Here’s how it all happened.
Bright Start is a federally mandated college-savings plan established state-by-state, known generically as a 529. It permits a youngster’s family to put money into a special investment program where the profits grow tax-free. The rules and benefits differ somewhat in each state but that tax advantage is at the heart of all.
The treasurer’s office administers the program in Illinois. Its role is to find sound, conservative investment vehicles—the kinds that do okay even in an economic downturn. Sort of like doctors’ rules: First, do no harm.
Well, Giannoulias and his entourage, Chief of Staff Robin Kelly and Deputy Treasurer Raja Krishnamoorthi, included among Bright Start’s 21 investment choices an Oppenheimer bond fund called Core Plus Fixed Income Strategy. The fund was about as conservative as Rachel Maddow, and herein lies part of the argument.
Oppenheimer—one of the country’s major investment firms—insists the fund was indeed conservative except a rogue manager got cute late in the game and began investing in wild derivatives—the kind of instruments that helped bring down the economy. Another school of thought says that the treasurer’s office should have been monitoring all those mutual funds all the time to be sure their investments remained within their professed bounds.
So if it wasn’t a total blunder in the treasurer’s office, there’s little doubt they weren’t paying enough attention, which is not a great idea when handling billions of dollars.
The bottom line is the Core Plus fund lost 38 percent of its value in 2008—while other bond funds grew 5 percent. Some 65,000 Illinois families were told they lost a total of $85 million during the year’s last three quarters. Then they were told Illinois would sue Oppenheimer, as did five other states that lost money in the fund.
Early this year the treasurer and the attorney general announced they were on the way to a $77 million settlement with Oppenheimer—a recovery of more than 90 percent. Wow!
So right before Christmas, comes the news that indeed the $77 million settlement was made. Just one problem: The actual loss was not $85 million, but $150 million. A recovery of just more than half. Oops!
The fact is, the treasurer’s office knew the actual size of the loss all along, but chose not to disclose it. Yes, Virginia, they covered it up.
If it looks like a cover-up, if it walks like a cover-up and it quacks like a cover-up…. could it be for political reasons?
Here in Illinois?
Ponder this: not only is Giannoulias a senate candidate, but Kelly is running to replace him as treasurer and Krishnamoorthi is running for state comptroller. Empire building?
Kelly, who ran the office, says publicly the office has never lost any money. When reminded of Bright Star she corrects herself to say “any taxpayer money.” How’s that?
Krishnamoorthi has said nothing about Bright Star but his website says he oversaw all the treasurer’s programs and there was never a scandal. Really?
All three have primary opponents who seem more than likely to raise the Bright Star cover-up as an issue: especially the three running against Giannoulias. Should any of the Giannoulians survive the primary, their Republican opponents will be even more vitriolic and better financed than the Dems. A GOP revival?
Some stars may not be very bright after all.
Don Rose is a regular columnist for the Chicago Daily Observer
image watercolor Sinking of the Lusitania