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A charity donation can be hinky, too

Let’s say a trustee on the board of a public pension plan is running for political office, and solicits campaign contributions from the fund’s investment advisers — firms the trustee has the power to hire or fire.

That could be viewed as blatantly unethical — at best, a conflict of interest, at worst, a version of “pay to play.”

But what if, instead of a campaign fund, the trustee asks vendors to donate to a pet charity?

If the money goes to a good cause, does that make the solicitation OK?

Not necessarily, and a recent Better Government Association investigation illustrates why:

Robert Kelly sits on the board that governs the Chicago Transit Authority’s pension system. He is also president of the Amalgamated Transit Union Local 308, which represents CTA rail workers.

The BGA, along with Crain’s Chicago Business, recently found that Kelly’s union has repeatedly solicited donations from investment firms doing business with the retirement fund.

The contributions went to a Local 308 education program, which provides scholarships to students. In 2012, Kelly’s daughter was one of the recipients.

Kelly insists he did nothing wrong. And education is certainly a worthy cause.

But as a board member, Kelly helps determine which investment firms are retained. The question, then, is whether he’s using his position of authority to pressure firms into contributing to his charity?

Here’s what David Hess, who teaches business ethics at the University of Michigan, says in an email:

“If the trustee had a daughter who was selling a couple boxes of Girl Scout Cookies to a service provider, then we wouldn’t think much of it. But if the trustee is seeking a sizeable donation for a good cause, then we start to see the appearance of a conflict of interest — especially if you look at the situation from the perspective of the service providers and their decision whether or not, and how much, to donate.”

Over the past four years, Local 308’s scholarship fund accumulated nearly $100,000 in contributions. Kelly won’t confirm that most of it came from financial firms and other advisers who work with the pension plan, or would like to, but a sponsorship book the union published with dozens of full-page ads from investment managers makes it look that way.

Executives who donated say they did so in good faith. As one firm’s CEO puts it, “We were trying to do well by doing good.”

But the optics aren’t good, and they could easily undermine the public’s trust in how the fund is being managed, especially when you consider the other serious problems we’ve uncovered with a pension plan that handles $1.7 billion in retirement assets.

The plan apparently doesn’t have a budget or annual payroll records for its employees. And while board and staff members are limited in the amount of free meals and other perks they can accept, the fund admits it doesn’t track this information in any organized fashion.

A sampling of emails obtained by the BGA through the Illinois Freedom of Information Act suggests the fund’s executive director, John Kallianis, accepted tickets to a White Sox game and enjoyed meals at high-end restaurants, such as Rosebud Prime. But Kallianis refuses to answer questions about the outings, including who attended and who paid.

Maybe he stayed within the allowable limits, but without transparency we don’t know if guidelines are being followed.

The fund also continues to employ Gray & Company, a financial consulting firm that’s steeped in controversy and facing a Securities and Exchange Commission investigation for alleged conflicts of interest.

Gray’s contract with the CTA fund was lacking an important disclosure requirement that could have alerted the pension board to the SEC probe.

Now, in the wake of our investigation, lawyers for the pension fund are assessing the propriety of Kelly’s donation requests.

Given the fund’s management problems and the amount of retirement money at stake, it’s about time for the people who run it to start taking these issues seriously.

CTA retirees and rest of us deserve some answers.

Andy Shaw is President & CEO of the Better Government Association.

Email: ashaw@bettergov.org

Twitter: @andyshawbga



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