Friday, October 07, 2022

It's Groundhog Day Once Again at STRS

By Joe Lupo, Founder of MOF

(Ohio STRS Member Only Forum on Facebook)

October 6, 2022
"Its like Groundhog Day everyday at STRS..."
This phrase refers to the movie "Groundhog Day" about a man reliving the same day over and over...every time he wakes up. And so it is with STRS members and the continued uncovering of information that falls under what can only be called a dark cloud because of the continued cloak of secrecy and deceit by management. The lack of transparency continues to be alive and well on Broad Street and it is our hope that changes soon.
Having said that, our "STRS Whistleblower" has struck again. Once again, I will present the information provided in the form of a question. Based on the past, there more than likely will be no response by STRS management to this question.
QUESTION: Did a former STRS Board member and another unnamed individual file complaints with the Ohio Ethics Commission regarding investment/hiring involving a former investment staff member?
The Ohio Ethics Law (ORC Chapters 102 and 2921) prohibits every public official or employee from participating in any way, in actions and decisions that directly involve their own financial interests or those of their families or business associates. Because it references public officials or employees, it would at first glance appear that anyone else would be excluded from the provisions of the law or the "Ohio Revolving Door Policy."
However, Ohio's largest retirement system in their information on the internet state they are not part of state government. They also claim that the ORSC (Ohio Retirement Study Council) provides legislative oversight of all state public pension systems (ORC Section 171.01) which presents an obvious conflict in the information provided. If you are confused at this point, let me add a couple of additional caveats to the scenario they present. They clearly state they were established in 1935 to provide pension benefits and health care coverage to retired public employees in Ohio. They also specifically cite the ORSC (Ohio Retirement Study Council) providing legislative oversight of all state public pension systems.
The question that quickly should come to mind regarding the above is if they were established by the Ohio Legislature and the ORSC (a failed political body) providing legislative oversight, the reality is the Ohio public retirement systems were created by the Legislature and by definition and ORC are an agency of the State of Ohio. The retirement systems are also made of public employees both active and retired. The Ohio Legislature has and continues to retain legislative authority over all 5 Ohio Public Pension Systems. Why would the ORSC include legislative member representation?
All 5 public pensions systems are controlled by the Ohio Legislature and all have Trustees/Boards (ORC Chapter 3309) and have politically appointed representatives (ORC 3309.05) which outlines the qualifications and requirements of those appointments. The semantics and definitions of the Ohio Ethics Law are not consistent with reality.
It is a fact that the Ohio Legislature is a major player in the mounting problems we as members of STRS are confronted with today. The handing off of their legislative responsibilities and accountability to a crippled council for legislative oversight and pension fund Trustees/Boards (ORS 3309.03) does not remove their responsibility and accountability for what has gone on for over 30 plus years at STRS. What it does do, is make them accomplices along with those that have and are still serving on the STRS Board (both appointed and elected) who have voted us into a financial quandary based on the recommendations of STRS management and staff.
To make matters worse, the Ohio Legislature discriminated against the members of STRS by approving legislation that allowed STRS to ultimately freeze our COLA and keeping the COLA intact for OPERS. They also passed recommended legislation requested by STRS increasing retirement requirements for active STRS members. Legislators have yet to acknowledge that STRS members are being forced to subsidize their retirement system and the only austerity program at STRS rests on the backs of all the members. It is a fact the Ohio Legislature has been silent and has failed to lift a finger to right the wrong that they are a partner in.
In closing, all MOF members should know, and many of you do, that the moderators and I work every day behind the scenes for a cause that we deeply believe in..and that is welfare of every current and future members of STRS. All of our time is volunteered. We appreciate the many contributions by MOF members in posting and commenting on postings. We encourage all MOF members to do the same. You are helping the cause by your participation.
We also know there are times that you become frustrated...we do also because things take so long. We believe that our patience and unwillingness to accept what is at STRS will ultimately work in our favor. Always be reminded that it took 30 plus years of mismanagement and Boards, with the exception of a very few members, to get us at the place we now find ourselves. It has only been 5 plus years that we have been collectively working together to unify active and retired members by providing and sharing information that the vast majority of us would other wise be totally unaware of. We have won some battles, but the winning of the war remains in front of us. 
Once the war is won, MOF will continue to exist as long as there is an STRS. What has happened at STRS can never happen again...not to us and not to those yet to come!

Tuesday, October 04, 2022

Edward Siedle: Your State Pension Is Now Gambling On Cryptocurrency

Your State Pension Is Now Gambling On Cryptocurrency

Edward Siedle
Pension forensics expert and record-setting whistleblower award winner
Oct 3, 2022
Legendary investor Warren Buffett says “cryptocurrencies basically have no value and don’t produce anything.” Yet, according to a recent study, 94% of America’s state and local government pensions—often regarded as the dumbest institutional investors in the world by Wall Street—are gambling on cryptocurrencies. 
If you are a participant in a state or local government-sponsored pension fund, then a portion of your hard-earned retirement savings is likely invested in cryptocurrency or a cryptocurrency-adjacent enterprise. According to a 2022 study published by the CFA Institute, 94% of state and government-sponsored pension funds are invested in one or more cryptocurrencies despite the obvious risks. The attraction to this high-risk asset class is largely driven by the perception that cryptocurrencies have delivered spectacular returns over the last 12 years. Never mind that legendary investor Warren Buffett says “cryptocurrencies basically have no value and don’t produce anything,” America’s public pensions—often regarded as the dumbest institutional investors in the world by Wall Street—think they’re smarter than Buffett and are eager to gamble on cryptocurrencies. (Likewise, Buffett’s repeated warnings about private equity and hedge funds have long been ignored by public pensions.) 
According to Anessa Allen Santos, a Florida attorney and Special Magistrate who specializes in blockchain and fintech, one glaring reason why no pension fund should be toying with cryptocurrencies right now is “the rapid increase in regulatory hostility exercised without restraint toward cryptocurrency issuers by several federal administrative agencies.” 
Attend any meetup, conference or gathering for cryptocurrency, blockchain, fintech, NFTs or the metaverse and you’re sure to hear grumbling about the lack of regulatory guidance coined as regulatory uncertainty, Santos observed. In reality, several federal agencies have issued an abundance of regulations that grant these agencies increasing latitude to bring civil enforcement actions and criminal charges resulting in a legal framework overtly hostile to the industry, she says. For example, the SEC’s position under both the Trump and Biden administrations is that nearly every cryptocurrency ever released is an unregistered public offering of securities. The SEC is so aggressive about prosecuting unregistered digital asset securities that they have dedicated an entire webpage to listing Crypto Assets and Cyber Enforcement Actions that can deter even the most diligent blockchain entrepreneur. Although the SEC has recently been accused of “selective enforcement” of the regulations against unpopular digital asset issuers and exchanges, the more likely explanation, says Santos, is that the SEC simply lacks the resources to prosecute all the schemes they’d like to target. Consequently, how any pension plan could ever justify investing in cryptocurrencies that are likely to be deemed unregistered securities or exchanges is beyond the pale.
In the past, the SEC and CFTC have made non-binding statements that BitcoinBTC 0.0% and EthereumETH 0.0% are not securities, but are commodities subject to CFTC regulation and oversight for instances of fraud or manipulation in spot markets, and for commodity pools, futures contracts, and other derivatives. Santos believes, given the choice, the industry would generally prefer to be regulated by the CFTC rather than the SEC because of the belief that CFTC compliance is less onerous. For this reason, most blockchain developers try to model their projects after Bitcoin and Ethereum which have successfully avoided an SEC smackdown to date. However, due to recent changes in regulations across a bevy of jurisdictions worldwide, these models no longer provide the safe harbor they once did. Moreover, with the CFTC’s recent formation of the Office of Technology Innovation designed to focus on financial technology, she anticipates a flood of enforcement actions charging staking pools as unlicensed commodity pool operators. As a result, she believes pension funds caught investing in these unlicensed financial products may find themselves the subject of class action lawsuits that would be justified under the circumstances.Here’s How Old School Investing May Just Protect Your Retirement
To further complicate matters, if a crypto-commodity serves as a generally accepted payment alternative to the dollar—like Bitcoin—then it will also be regulated by the Financial Crimes Enforcement Network (FinCEN). The sister agency to the SEC and the CFTC, FinCEN oversees the administration and enforcement of the Bank Secrecy Act (BSA) that regulates financial institutions, dealers in precious metals and gems, and money transmitters, among others. The cost of BSA compliance is steep, says Santos, and it extends not just to regulation by FinCEN, but to each state financial regulator as well, resulting in a 51-jurisdiction compliance quagmire that has incentivized more than a few legitimate blockchain companies to start their startup somewhere else. Although Wall Street is more familiar with this agency’s zero-tolerance policy for error, young innovators are not. They are falling like dominos before a hurricane to FBI dawn raids complete with tactical vehicles and weaponized drones for selling Bitcoin for a profit or a fee without a license, according to Santos. FinCEN enforcement actions involving cryptocurrency usually focus on the failure to implement an effective anti-money laundering program compliant with BSA requirements. The challenge, however, says Santos, is that FinCEN has made no statement describing the factors that determine when a cryptocurrency has gained such widespread acceptance as a means of payment that transmission of it requires registration and licensure. Pension funds and their operators are likewise regulated by FinCEN and must comply with the BSA. Thus, they must take note of this patent ambiguity, and failure to recognize this regulatory gap in their investment strategy is almost certainly a violation of the fiduciary duties owed to plan participants, in her view.
Read the rest of the article here.
Edward Siedle, Pension forensics expert and record-setting whistleblower award winner, is a former SEC attorney, investment banking and securities industry professional, and longtime Forbes writer. He is the nation's leading expert in forensic investigations of money managers and pensions, focusing upon excessive and hidden investment fees and risks, conflicts of interest and wrongdoing. He was named as one of the 40 most influential people in the U.S. pension debate by Institutional Investor Magazine for 2014 and 2015. His preliminary report on his forensic investigation of STRS, The High Cost of Secrecy, was released June 7, 2021.
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