CH 8: Obama's State Pension Scheme

The following is a reprint from a Special Report published by the Washington Examiner dated September 20, 2012. A link to the Washington Examiner maybe found in our 'Links' Listings.

William Atwood, executive director of the giant Illinois State Board of Investment, told The Washington Examiner that Obama was relentless in applying pressure. "Anytime I saw him, he brought the issue up. I would see him in Springfield or I would see him at a function and invariably he raised the issue." State Sen. Barack Obama and members of an Illinois lobbying group representing politically connected minority-owned businesses launched a campaign in 2000 to pressure state pension funds to help their friends and donors.

Obama and his cohorts targeted state officials in charge of pension funds for teachers, police and firemen, and regular government employees.

Much as the Rev. Jesse Jackson had been doing for years to Fortune 500 corporations, Obama and the Alliance of Business Leaders & Entrepreneurs, or ABLE, demanded that the officials set aside at least 15 percent of pension assets for management by minority-owned investment companies.

If their plan succeeded, the favored investment companies would add lucrative assets to their portfolios, which in turn would help push even more business their way.

John Rogers, Ariel Capital Management's CEO, and James Reynolds, founder of Loop Capital, were ABLE leaders and longtime Obama supporters. Louis A. Holland, chairman of Holland Capital Management, was also an ABLE leader and Obama donor.

Rogers was especially close, having played basketball with Michelle Obama's brother at Princeton and shot hoops with Barack Obama. Reynolds and Obama played basketball at Chicago's chic East Bank Club and golfed at the South Shore course.

Rogers recalled the state pension scheme in a 2007 interview in which he prudently cast it as an effort "to force other industries to have their 'Jackie Robinson' moment," just as Jackson had done with many Fortune 500 companies.

Obama not only met regularly with the ABLE leaders to plot strategy, he enlisted powerful Illinois House Speaker Michael Madigan to accompany him in meetings with officials of the targeted pension funds.

Just as important, Senate President Emil Jones, the cagey Springfield veteran who was Obama's legislative mentor, gave him additional leverage by assigning him to a committee that oversaw public pension funds, according to the New York Times.

William Atwood, executive director of the giant Illinois State Board of Investment, or ISBI, told The Washington Examiner that Obama was relentless in applying pressure.

"Anytime I saw him, he brought the issue up. I would see him in Springfield or I would see him at a function and invariably he raised the issue," Atwood said.

The campaign succeeded in early 2001 when more than $500 million from the pension funds was transferred to Ariel and Holland, and Loop was retained as a brokerage firm, according to pension fund documents obtained by the Examiner. The State Universities Retirement System of Illinois, or SURS, awarded Ariel $49 million, while Holland got $26 million. Loop handled the trading of 2.3 million shares, according to SURS documents obtained by the Examiner.

The ISBI awarded $178 million to Ariel. The Teachers' Retirement System of the State of Illinois, or TRS, handed over $210 million to Ariel and $75 million to Holland Capital Management.

Ariel's assets increased dramatically following the infusion from the pension funds, rising from $2.8 billion to $15 billion between 1999 and 2002, according to the firm's Securities and Exchange Commission filings.

Even so, things did not go well a few years later. Ariel and Holland were terminated by ISBI and SURS for what pension board officials described as "underperformance."

Rogers also wasn't helped when U.S. Attorney Patrick Fitzgerald revealed in federal court proceedings that Rogers had given $22,500 to bundler Tony Rezko, who was later convicted of influence peddling.

Rogers' money was destined for the campaign of Gov. Rod Blagojevich, who, like Rezko, is now serving a federal prison sentence for public corruption. No charges were ever filed against Rogers in connection with the $22,500.

Rogers remains an Obama confidant. He has visited the White House at least 37 times since Obama's 2009 inauguration for both business and social meetings with the president, senior aides in the White House and the first lady.

Ariel's president, Mellody Hobson, received a presidential appointment in 2009 to serve on an SEC investment advisory committee.

During the 2008 presidential campaign, ABC News reported that employees of the three firms had donated $765,000 to Obama, who was also said to have used private jets owned by two of the firms.

Rogers now ranks as the third-biggest bundler for Obama, raking in $1.5 million for the president's re-election effort. He also is a $50,000 donor to pro-Obama super-PAC Priorities USA.

Holland and CEO Monica L. Walker have given $57,000 to Obama and the Democratic National Committee since 2000, according to federal campaign finance records.

Obama boasted about his success in the pension campaign during a 2007 address before the National Urban League conference.

Referring to ABLE, he declared, "some of the financial service leaders there, they came to me and said, 'You know, we are not getting any business from our own state pensions.' "

Obama was proud of his accomplishment. "In about six months, they got about a half-billion dollars' worth of business," Obama declared.

The campaign was aggressive. A toughly worded statement by the minority firms was distributed to a Jan. 19, 2001 board meeting of the ISBI, according to minutes of the event obtained by the Examiner.

The firms demanded that the fund "immediately require that all current ISBI money managers do 15 percent of their brokerage business with African-American owned broker/dealers." They also insisted that 15 percent of the fund assets be allocated to "African-American owned investment management firms."

What was left unstated was that Rogers' Ariel fund already had a small presence at ISBI, but that it was underperforming.

In 1999, for example, the ISBI said Ariel was in the lowest 87th percentile among midcap companies on the Russell Index, according to minutes of a special Nov. 17, 2006, ISBI meeting obtained by the Examiner. Still, the ISBI awarded $178 million to Ariel.

Ariel's underperformance continued until its termination in 2006 after Marquette Associates and Iron Capital Advisors reported to ISBI that Ariel had "failed to meet ISBI expectations regarding performance going back a number of years." It fell to the 96th percentile in 2006.

In criticizing Ariel, the ISBI reported that in 2006 the firm grew only 8.35 percent, compared with an average of 17.41 percent for its peer group.

In May 2006, the TRS also cancelled Ariel's $210 million account and terminated Holland's $75 million in funds.

Next: Chapter 9: The Arab-American network behind Obama


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