The three-year-long pay-to-play scandal revolving around the Teachers' Retirement System of the State of Illinois culminated last week in five felony indictments. Among those indicted: former Gov. Rod R. Blagojevich.
On the same day the indictments were filed, the Illinois legislature passed a reform bill with a last-minute addition that will cost TRS Executive Director and Secretary Jon Bauman his job, and will change the composition of the boards of the three state pension plans, which, combined, have assets totaling $40 billion.
Gov. Pat Quinn signed the Illinois Governmental Ethics Act on April 3, giving him the power to replace all the trustees of the three state pension funds appointed by Mr. Blagojevich and previous governors. The trustees were terminated immediately, but are being reviewed for possible reappointment.
The act also terminates Mr. Bauman's employment by July 1 and prohibits him from working for the $21.9 billion Illinois Teachers' fund. Mr. Bauman declined to comment.
The 75-page indictment includes charges that Mr. Blagojevich and close aides sought financial gain and campaign contributions from investment companies seeking to do business with the Illinois Teachers' pension fund.
According to the indictment, William F. Cellini and campaign fundraiser Christopher Kelly — along with Stuart Levine and Antoin Rezko, previously convicted for their roles in the TRS fraud — sought in 2003 to control the activities of the TRS board.
Mr. Cellini “had longstanding relationships and influence with trustees and staff members” at the pension fund, and was a director at Commonwealth Realty Advisors, a real estate manager for TRS, according to the indictment. Mr. Levine allegedly agreed to push TRS to invest in money managers and do business with law firms that would make contributions to the Blagojevich campaign.
The indictment also charges that Messrs. Kelly and Rezko asked investment firms interested in doing business with TRS for campaign contributions in order to get on TRS' list of recommended managers.
Messrs. Kelly and Cellini also are charged with a separate fraud conspiracy count alleging that, in 2004, the pair talked to Mr. Rezko and others about moving Mr. Bauman to another job in state government “to ensure he would not cooperate with law enforcement.”
The new law also requires that Illinois State Treasurer Alexi Giannoulias create a working group to review the performance of, and make recommendations regarding, investment managers and consultants of each of the state pension funds. Other details of the new law include:
• The state's public pension funds must adopt formal investment policies that increase the use of emerging money management and brokerage firms.
• The meaning and duties of a fiduciary of a state pension fund was redefined.
• Complete information on money manager and consultant searches must be widely available online, as should information on each fund's assets, asset allocation, managers and consultants, and performance.