Nori Gerardo Lietz knows real estate is a tough business. But the Pension Consulting Alliance Inc. executive never expected to be the victim of a smear campaign that was disseminated to PCA's biggest clients.
Nor would she have reason to suspect the skulduggery would involve a bogus newspaper article from a non-existent newspaper or that draft materials calling for an investigation of her actions would mysteriously be spirited out of an Oregon legislator's office.
Documents suggesting Ms. Gerardo Lietz had a personal stake in real estate funds she had recommended to PCA pension fund clients resulted in calls for investigations of the consultant by a high-ranking Oregon Teamsters official and California State Controller Kathleen Connell.
Eventually, Ms. Gerardo Lietz was exonerated by all four pension fund clients that had been contacted in the campaign: the Western Conference of Teamsters; the Oregon Public Employees Retirement Fund; the California Public Employees' Retirement System; and the California State Teachers' Retirement System.
This type of cloak-and-dagger activity is more likely to be found in spy novels than in the normally staid pension fund world. "I never in 20 years have seen anything like this," said Allan R. Emkin, a PCA managing director based in Encino, Calif.
Added Ms. Gerardo Lietz, who operates out of Bloomfield Hills, Mich.: "I feel like I'm in a Fellini movie. It's very strange." She speculated the documents had been supplied by a money manager with a gripe against PCA.
Who would perpetrate such a hoax?
So far, inquiries lead back to two political consultants with ties to the International Brotherhood of Teamsters in Washington, and to Teamsters headquarters. The consultants are Tom Pazzi of Potomac Management, a former top aide to Teamsters' President James P. Hoffa Jr., and Rob Schroth of Schroth & Associates, both located in Washington.
Mr. Schroth said he was an unwitting participant in the smear campaign by passing documents -- which had been left on his desk with an anonymous note -- to two reporters in Oregon and an Oregon legislator. A Teamsters spokesman said one document purportedly faxed from the union's Washington headquarters includes a phone number that does not exist at the Teamsters headquarters. Mr. Pazzi did not return repeated requests for comment.
The allegations started with a Dec. 28 letter written by Darel Aker, president of the Joint Council of Teamsters No. 37, Portland, Ore., to Jim Voytko, director of the $40 billion Oregon Public Employees Retirement System in Tigard. (Many Teamsters members participate in the Oregon system.) Among those copied on the letter were Oregon's governor, secretary of state and state treasurer.
Mr. Aker wrote that Teamster officials "have become deeply disturbed regarding information" that Ms. Gerardo Lietz "has recommended the investment of state pension funds into a real estate opportunity fund in which she holds a personal interest." (The emphasis is in the original letter.)
Ms. Gerardo Lietz had recommended the Oregon pension fund invest in the Lone Star Opportunity Fund. According to documents filed with the Securities and Exchange Commission, Ms. Gerardo Lietz owns five units of WhiteRock Portfolio Investors LLC, a holding company that has a 5% stake in the Brazos Fund LP and a 6% stake in Brazos' sister fund, Lone Star.
All of WhiteRock's expenses are covered by a general partnership that owns Lone Star, Mr. Aker's letter added.
What's more, Mr. Aker, who is also a trustee on the $24 billion Western Conference of Teamsters fund, Seattle, wrote the Oregon fund had invested $70 million in Lone Star in November 1996, and made additional investments in later years -- all while Ms. Gerardo Lietz served as the fund's real estate consultant.
PCA denies conflict
In a Jan. 10 letter to Oregon state pension fund officials, Ms. Gerardo Lietz rebutted the charges. "I do not have any personal interest in any of the Lone Star funds, nor in the general partner, nor does anyone within our organization. I have not received any remuneration whatsoever from the general partner of the Lone Star funds since their inception, and will not in the future," she wrote. (The emphasis is in the original letter.)
With regard to owning units in WhiteRock, Ms. Gerardo Lietz explained that she served as an independent director of the holding company at the request of the PacifiCorp Pension Trust, another PCA client. For legal reasons, Portland, Ore.-based PacifiCorp officials decided they needed to invest in the Lone Star funds via a holding company, and WhiteRock was formed in September 1995. A PacifiCorp pension official confirmed the account.
Ms. Gerardo Lietz added she did not have any economic stake in WhiteRock, and that all distributions from the Lone Star fund are forwarded to PacifiCorp. PacifiCorp pays a retainer fee to PCA, the same as any other retainer client, and the consultant does not take any payments from Lone Star or any other manager, she added.
What's more, the investment has been one of the Oregon fund's best opportunity funds, generating net returns of 20.4% for five years to the Brazos fund, and 15.4% for three years for the Lone Star fund, as of Sept. 30, Ms. Gerardo Lietz stated in the January letter.
On Jan. 25, Mr. Aker apologized to Ms. Gerardo Lietz in writing: "I am relieved to learn that my concerns have now been cleared up with the additional information I have received. I would also like to apologize for any inconvenience my letter may have caused you or your firm in their relationship with Oregon Public Employees Retirement System."
In a phone interview, Mr. Aker said he understands the materials originated with an unknown party in Washington state, were forwarded to Teamsters officials in Washington, D.C., and then were sent to him by Potomac Management's Mr. Pazzi.
An investigation by Oregon pension officials also dismissed the issues.
Charges reach California
However, the allegations already had spread to California -- shortly before PCA's real estate consulting contracts were coming up for renewal at both CalSTRS and CalPERS. (PCA serves as real estate consultant to both funds in a joint venture with Ernst & Young/Kenneth Leventhal Real Estate Group. PCA also is CalSTRS' general consultant.)
Two separate packages were sent by Federal Express to California Controller Ms. Connell's Culver City office, with a return address of the International Brotherhood of Teamsters in Washington, D.C., said Richard Chivaro, the controller's chief counsel. Each package came with a bullet-point summary of the enclosed documents but no cover letter, he said.
In a Jan. 19 letter to James D. Mosman, CalSTRS' chief executive officer, and copied to all CalSTRS board members, Ms. Connell wrote she had "become aware" that Ms. Gerardo Lietz "is currently under investigation by the Oregon Public Retirement System."
Furthermore, Ms. Connell attached an undated article from the Bloomfield Hills (Mich.) Community News that said the real estate consultant was under investigation for steering more than $100 million in Oregon pension fund assets into the Lone Star funds in which Ms. Gerardo Lietz supposedly had a personal interest. The article further noted that Oregon Rep. Vicki Walker had called for hearings that had been scheduled for early February.
"Such conduct, if verified, would be unacceptable in a consultant to one of the largest pension funds in the United States," Ms. Connell wrote, asking Mr. Mosman to investigate the charges.
In a second letter, dated Feb. 6, Ms. Connell sent additional materials to Christopher Ailman, CalSTRS' chief investment officer. (Ms. Connell also sent correspondence to Daniel Szente, CalPERS' chief investment officer, at the same time.)
Included was a press release from Ms. Walker calling for hearings on the matter, and saying she had learned of the conflict from Mr. Aker of the Teamsters.
Also included was a Feb. 2 letter from Ms. Walker to Mark Simmons, speaker of the Oregon Assembly, saying she was "deeply disturbed" by information provided her by the Teamsters. In the letter, she requested that Mr. Simmons schedule public hearings on the issue.
Article was a fraud
But one startling issue was just coming to light: the newspaper article appeared to be fraudulent.
In a Feb. 2 letter to Mr. Mosman that also was sent to the controller, Ms. Gerardo Lietz wrote that the Bloomfield Hills Community News "does not, to the best of our knowledge, exist."
"After conducting extensive research for this publication (the Internet, local phone directories, contacting the daily publications in Southeastern Michigan, and the Bloomfield Hills Chamber of Commerce) we have been unable to locate an address, phone number or the existence of the publication and/or the reporter," she wrote. Nor have CalPERS or CalSTRS staffs been able to locate the publication, she added. (Efforts by Pensions & Investments to locate the newspaper also were unsuccessful.)
Subsequent inquiries by various pension fund officials and staff members in Ms. Walker's office revealed the press release and letter to Mr. Simmons had been drafted but never released, and that Ms. Walker's signature had been forged on the letter. An aide to Ms. Walker confirmed this account, and said staffers do not know how the materials were taken from the office.
In addition, while the draft press release and letter said the original information had been supplied by Mr. Aker, in an interview the aide said the materials had come from Mr. Schroth, the Washington-based pollster, who confirmed he had provided the documents to Ms. Walker.
How Mr. Schroth came upon the documents is another mystery. Late last year or in January, Mr. Schroth said, "I literally returned from lunch at 2: 30 one day and there was a package on my desk. There was a brown manila envelope" containing some of the SEC documents and a bullet-point summary.
Also enclosed was an anonymous note observing that Mr. Schroth had clients in Oregon, and that the materials might make for a good news story. Mr. Schroth said he passed the papers to Ms. Walker and to two Oregon-based journalists. The documents, he said, "seemed legitimate."
At the Feb. 7 CalSTRS investment committee meeting, staff exonerated Ms. Gerardo Lietz, although Walter Barnes, Ms. Connell's stand-in on the board, said the issues still were valid. Other board members, however, grilled him on when and how the materials arrived at the controller's office, and why the staff had not tried to validate the allegations before disseminating the materials.
Mr. Barnes said the information in the press account, whether or not the paper itself was fraudulent, appeared to be accurate, and questioned why there was an issue of "attacking the messenger."
After discussion of the issue, the CalSTRS board (and, two weeks later, the CalPERS board) voted to extend the real estate consulting contracts with PCA for one year.
In a later interview, Mr. Chivaro said that Ms. Connell serves in an ex-officio capacity on more than 50 state boards and commissions, and, in that role, receives hundreds of complaints a year. Rather than investigate charges themselves, Ms. Connell's staff routinely refers them to the relevant agency head, he said.
Why Ms. Connell pursued the matter so vigorously has raised eyebrows. Several sources said Ms. Connell was irate with PCA's Mr. Emkin for a 1998 court declaration in which he stated that he had rejected requests for campaign contributions by the controller and her staff. But Mr. Chivaro said he never has heard Ms. Connell make negative comments about PCA or Ms. Gerardo Lietz.
In a Feb. 16 letter to Ms. Connell, Richard Pachter, an attorney representing Ms. Gerardo Lietz and PCA, wrote: "The State Controller's Office has been used in a despicable effort to impugn Ms. Lietz' integrity." He asked that any documents related to the smear campaign be released.
Perhaps the most striking document released by the controller's office, however, did not surface until mid-March.
A three-page bullet-point document -- which has a fax identification on the top labeled "IBT," a Washington phone number and a transmission date of Jan. 30 -- reiterates the allegations against Ms. Gerardo Lietz and includes some stunning new charges.
The document charged "the Oregon State Treasurer and officials at the Oregon Public Employees Retirement System are engaged in a systematic coverup of an egregious conflict of interest by a consultant to the state pension system who is (along with her husband) a substantial Democratic Party fundraiser."
The anonymous document also claimed that Treasurer Randall Edwards had pressured Ms. Walker to withdraw her letter seeking hearings on the alleged conflict. Both Mr. Edwards and Ms. Walker's staff deny those allegations.
Ms. Gerardo Lietz said neither she nor her husband is a big political giver. "If I vote, that's as political as I get," she said. Ms. Gerardo Lietz said she once gave money to Emily's List, which raises money for female Democratic candidates, and once to Sen. John McCain, R-Ariz.
Nor is it clear where the document came from. Despite the fact that the exchange listed on the document matches some used at Teamster headquarters, Rob Black, union communications director, said: "I have done the research. That fax number does not exist in this building."
What's more, the document claimed the Teamsters' Mr. Aker "was pressured by State Treasurer Kendall (sic) Edwards to withdraw his (Dec. 28) letter" that had alleged a conflict by Ms. Gerardo Lietz. "I flat out deny the points on my strong-arming Darel (Aker), that's just flat-out not true," Mr. Edwards said.
The document further said that unnamed members of the Teamsters for a Democratic Union -- a Teamsters reform group -- were telling federal authorities who oversee the Teamsters union that "Aker took a bribe to change his position."
A TDU spokesman said he had no knowledge of any charges, although he noted the letter cites unnamed members of the group.
Mr. Aker also denied the allegations against him, calling the bribery charge "a crock."
"It appears that somebody was after (Ms. Gerardo Lietz)," he said. "Now, it appears that somebody hates me more."