Former Detroit Mayor Kwame Kilpatrick, former city Treasurer Jeffrey Beasley and MayfieldGentry Realty Advisors, a former adviser to the city's police and fire pension fund, have been charged with federal crimes by the SEC.
Also charged was MayfieldGentry CEO Chauncey Mayfield.
“Kilpatrick and Beasley, who were trustees to the pension funds, solicited and received $125,000 worth of private jet travel and other perks paid for by MayfieldGentry. … Chauncey Mayfield was recommending to the trustees that the pension funds invest approximately $117 million in a real estate investment trust controlled by the firm,” the MGRA Genesis REIT, the SEC alleges.
The $3.4 billion Detroit Police and Fire Retirement System and the $2.4 billion General Retirement System ultimately invested a combined $115 million in the REIT, according to the complaint.
Neither Messrs. Kilpatrick nor Beasley, who were both trustees to the city's pension funds, disclosed the gifts and the subsequent conflict of interest to the boards, the SEC alleges.
According to an SEC statement on the charges:
- In April 2007, MayfieldGentry paid for Messrs. Kilpatrick, Beasley and their associates to travel by private jet to Las Vegas, where they enjoyed luxury hotel accommodations, two concerts, three rounds of golf, meals and massages. The Las Vegas trip cost more than $60,000.
- In July 2007, MayfieldGentry paid more than $24,000 for a private jet to take Mr. Kilpatrick, Beasley's son and others to Tallahassee, Fla., where Mr. Kilpatrick had a second home.
- In October 2007, MayfieldGentry paid more than $34,000 for a private jet to fly Mr. Kilpatrick and his wife to and from Bermuda and Mr. Kilpatrick's father and his girlfriend back from Bermuda.
The SEC complaint alleges that Messrs. Kilpatrick, Mayfield and Beasley and MayfieldGentry violated numerous federal laws governing how investments are made, transactions are performed and investments
The SEC is seeking “disgorgement of ill-gotten gains, penalties, and permanent injunctions, including an injunction against Kilpatrick and Beasley to prohibit them from participating in any decisions involving investments in securities by public pensions.”
The police and fire board terminated MayfieldGentry last week after it learned that the company had purchased two California properties with Detroit pension assets without authorization and without transferring to the board the titles to the properties, both multitenant retail centers.
The board learned of the purchases in a letter from MayfieldGentry's CFO.
Board Chairman Sean Neary said last week that the board is pursuing legal action against MayfieldGentry.
Messrs. Kilpatrick and Beasley are already facing federal corruption charges — Mr. Kilpatrick for a bid-rigging scheme and Mr. Beasley for taking bribes to influence pension fund votes, according to the federal government.
Nancy Kaffer is a reporter at Crain's Detroit Business, a sister publication of Pensions & Investments