San Diego County Employees Retirement Association persuaded a trial judge to dismiss a case brought in January on the pension fund's behalf by a former SDCERA investment officer against the pension fund's former outsourced strategist and OCIO firm and others under the state's false claim act, said Scott L. Metzger, partner at law firm Dukor Spradling Metzger & Wynne, who represented SDCERA in the case, and Josh D. Gruenberg of law firm Gruenberg Law, who represented the plaintiff.
Following an Oct. 27 hearing, San Diego Superior Court Judge John S. Meyer dismissed the case by Jeff Baker, former SDCERA investment officer, without giving him an opportunity to amend his complaint. Mr. Baker filed the lawsuit, his third legal action since he was terminated in 2011, claiming that Lee Partridge, former chief investment officer of Salient Partners — SDCERA's OCIO — had, among other things, exceeded its risk budget for high yield and U.S. government securities, underinvesting in U.S. Treasuries and overinvesting in high yield compared to the asset allocation adopted by the SDCERA board, the complaint alleges.
Mr. Baker also sued consultants Aon Hewitt Investment Consulting and Albourne America, as well as money manager Hoisington Investment Management.
On Mr. Partridge's recommendation, SDCERA hired Hoisington to manage a $200 million liability-matching U.S. Treasury portfolio. Instead, and allegedly without informing the board but with the knowledge of the other defendants, the money was invested in Hoisington's core-plus strategy, the complaint alleged. None of the defendants informed the board of the switch. Hoisington's core-plus strategy pushed the tracking error for SDCERA's U.S. Treasury portfolio to 284 basis points above the 75-basis-point maximum tracking error permitted by the pension plan's investment policy statement, the complaint asserted. The complaint also alleged the defendants made other misstatements that understated the tracking error of the U.S. Treasury, high yield and entire pension fund's tracking error, negatively impacting SDCERA as well as holders of SDCERA's pension obligation bonds.
Between October 2009 and August 2015, Salient and Mr. Partridge's firm, Integrity Capital Services, which Salient acquired in 2010, provided outsourced CIO and money management services to the $12.2 billion pension fund. SDCERA terminated Salient and then redeemed the $4.9 billion Salient managed for SDCERA.
This was Mr. Baker's third legal action. He first filed an unsuccessful claim with the Civil Service Commission and the California's Department of Labor in 2011, and a federal lawsuit in 2012, claiming he was fired for informing his supervisors that the pension fund had breached its investment policy and had taken on too much risk. The complaint asked for more than $60 million in damages for SDCERA.
SDCERA initially filed notice that it intended to proceed with the action, effectively serving notice that the pension fund wanted to participate in the lawsuit brought by Mr. Baker on SDCERA's behalf. SDCERA later asked the court to dismiss the case, asserting that pension fund officials knew about the problems prior to the time Mr. Baker filed his first whistleblower complaints.
Mary Montgomery, SDCERA spokeswoman, said that SDCERA filed a notice of intention to proceed with Mr. Baker's action so it could participate.
"The board's decision to intervene was not an indication that the board agreed with the allegations in Mr. Baker's complaint," Ms. Montgomery said in an email. "Consistent with its fiduciary and constitutional duties, SDCERA investigated the allegations and took appropriate action to dismiss the complaint."
"The issues raised have been fully investigated and litigated years ago," Mr. Meyer wrote in a tentative ruling to dismiss the case prepared for the Oct. 27 hearing. That ruling is now final, said Mary Montgomery, spokeswoman, in an email.
SDCERA declined comment. Ms. Montgomery said in the email that the decision speaks for itself, supplying the following quote from the judge's tentative ruling: "It is not clear what Baker's interest is in this present litigation, considering his past history in litigating the same facts. But the potential waste of government resources in continuing this lawsuit is apparent."
Mr. Baker has decided not to challenge the ruling, said his attorney, Mr. Gruenberg.
"The feeling in our camp is that we lead this horse to water but we could not make it drink," Mr. Gruenberg said.
"For some reason, which we will never know and it appears the public will never know, the board has no interest in what Mr. Baker has to say and what the breaches were of the contract that the investment company had with the board," Mr. Gruenberg said. "We can only do so much if the board does not want to hear what we have to say and we will have to accept that."
