SAN FRANCISCO - A broker has accused the investment staff of the San Francisco City and County Retirement System of manipulating custodial records, creating secret international stock portfolios and misdirecting brokerage commissions, all in an attempt to exclude her firm from trading the pension fund's securities.
The allegations are part of a lawsuit brought by Dawn Clements, president of Western Select Securities Inc., a San Francisco brokerage firm. The suit was filed last month in U.S. District Court for the Northern District of California, San Francisco.
Ms. Clements also claims that a retirement staffer made disparaging comments about her that caused her to lose business. She also contends by failing to trade with her company, the pension fund violated the city's ordinance requiring that it do business with minority- and women-owned companies.
Ms. Clements is seeking $67.5 million in damages. She alleges the defendants violated the Racketeer Influenced and Corrupt Organizations Act.
Defendants include the retirement system and several members of its staff. Other defendants: officials at Nicholas-Applegate Capital Management LP, and Dresdner RCM Global Investors LLC, both of which run money for the San Francisco fund; Asset Strategy Consulting LP, consultant to the pension fund; and Northern Trust Co., the fund's custodian.
Officials at the pension fund declined to comment, as did officials with Asset Strategy Consulting and Nicholas-Applegate.
The general counsel for Dresdner RCM said the complaint is without merit.
"We are careful to meet our obligations to the San Francisco Retirement System as well as to our other clients with respect to the directing of brokerage," said Anthony Ain.
Ms. Clements claims that system staffers Carl Wilberg and Richard Picket, both senior investment officers with San Francisco, intentionally omitted from commission summary reports they prepared for the retirement board any reference to a global stock portfolio managed by RCM between the fiscal year ended 1997 and the fiscal year ended 1999, and an international stock portfolio managed by Nicholas-Applegate for the fiscal year ended 1997 through the fiscal year ended 1998.
But commission summary reports generated by Northern Trust during the same time period included both portfolios, alleges Ms. Clements.
"Asset Strategy intentionally omitted any reference to these 'secret portfolios' in the 'asset allocation recommendations' it prepared" for the pension fund, Ms. Clements said in her suit.
"The use of secret portfolios removed substantial trading activity from public review, monitoring and accounting," the suit states. "The secret portfolios improperly reduce the amount of trades in which Western Select . . . can participate.
"Western Select sought to conduct international brokerage business, but was unable to conduct business on behalf of these concealed portfolios," she alleged.
Ms. Clements also alleges that officials at the San Francisco fund concealed - from her firm and other minority- and women-owned brokerages -the existence of "large quantities of publicly traded securities" that the retirement system had in its private equity limited partnerships.
Pension funds often receive distribution of public stock from private companies in venture capital limited partnerships that are taken public.
The system violated the city's ordinances requiring that it make an effort to do business with minority- and women-owned firms during its hiring of an administrator for a deferred compensation plan, Ms. Clements alleges.
San Francisco is apparently exempt from the restrictions of Proposition 209, the state legislation that eliminated taking race and gender into consideration when contracting for services, according to several attorneys who commented on the question.
Western Select did not receive notice of a request for proposals for a consultant in December 1997 to select a consultant for the deferred compensation plan, Ms. Clements said in the suit.
Though the company is a brokerage firm, Ms. Clements said Western Select has consulting expertise and could have conducted the search.
Also, Ms. Clements alleges that Zula Jones, a senior contract compliance officer for the San Francisco Human Rights Commission and a defendant in the suit, said at a Feb. 3 meeting that Aetna Retirement Services, the administrator of the deferred compensation plan, was not in compliance with the city's ordinances for contracting opportunities for minority- and women-owned firms.
"Western Select had no opportunity to bid for the consultant position to assist in the selection of a plan administrator and Western Select had not had any business in connection with Aetna since its selection as plan administrator, all to the injury of Western Select," states Ms. Clements.
She also alleges that a letter she sent to Chief Investment Officer Carolyn Hamilton recommending how the pension fund could monitor its international money managers' use of minority- and women-owned brokerage firms was sent to all of the managers by Mr. Wilberg, without her knowledge or consent.
