Reuters: Regulatory News: UPDATE 2-SEC sues ex-Detroit mayor, adviser on 'gifts'

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UPDATE 2-SEC sues ex-Detroit mayor, adviser on 'gifts' May 9th 2012, 20:47 Wed May 9, 2012 4:47pm EDT May 9 (Reuters) - U.S. securities regulators on Wednesday charged the former mayor of Detroit Kwame Kilpatrick, a former city treasurer and its public pension investment adviser with devising a secret exchange of "lavish gifts" to influence investments of the city's public pension fund. According to the Securities and Exchange Commission, Kilpatrick and Jeffrey Beasley, a college fraternity brother of Kilpatrick who was named treasurer at the start of his second term as mayor, took $125,000 worth of perks, including a $60,000 vacation in Las Vegas, paid for by investment advisory firm MayfieldGentry Realty Advisors LLC. The SEC said that Chauncey Mayfield, the chief executive and majority owner of MayfieldGentry, in return recommended to the city's pension fund that it invest $117 million in a real estate investment trust controlled by his firm. The pension fund's board of trustees ultimately approved the investment, garnering MayfieldGentry "millions of dollars in management fees", the SEC said in the case filed in a U.S. District Court in Michigan. The alleged conflicts of interest were never disclosed to the board of trustees at the pension fund, where all three men served as fiduciaries, the SEC said. The SEC is seeking penalties and disgorgement of ill-gotten gains. It is also seeking to bar Kilpatrick, who has previously served jail time in an unrelated case, and Beasley from participating in any decisions involving public pensions' investments in securities. Lawyers for the three men were not immediately available for comment. Throughout 2007, Mayfield provided gifts to Kilpatrick and Beasley, while the board of trustees voted to "add to their business with Mayfield" without knowing about the gifts, the SEC said. LEGAL TROUBLES FOR THE 'HIP-HOP' MAYOR Kilpatrick, who was forced from office nearly four years ago as part of a plea agreement in which he pleaded guilty to obstruction of justice, has spent almost as much time in the legal arena as the political one since first taking office in 2002. Dubbed the 'hip-hop' mayor, Kilpatrick is to go on trial on Sept. 6 to face charges that he used a tax-exempt organization to give himself cash kickbacks, fund campaigns and financially support his family and friends. Under his previous plea agreement, he spent four months in jail, surrendered his law license and agreed to pay about $1 million in restitution. The plea stemmed from Kilpatrick's role in the city's settlement of a whistle-blower lawsuit, in which prosecutors alleged he lied in order to conceal text messages that revealed an affair with his former chief of staff. He went back to prison for violating the terms of his probation, and was released last August. The SEC had harsh words for Kilpatrick and the others charged in the case. Public pensions receive most of their revenues from investing the contributions from employees and the employing governments. "It is a disappointing day when pension fund trustees such as ex-Mayor Kilpatrick and others corrupt the investment process by selling out hard-working police officers, firefighters and other municipal employees for the price of a few vacations and paltry extras like concert tickets and rounds of golf," said Robert Khuzami, director of the SEC's Division of Enforcement, in a statement. In the charges, the SEC said Mayfield sought to prove his loyalty to Kilpatrick after supporting the mayor's opponent during Detroit's 2005 election. In April 2007, Mayfield chartered a private jet for the Las Vegas trip, which included $2,715.44 worth of tickets to a Prince show, the SEC said. Three months later he spent $25,000 for a private flight to Tallahassee and subsequently paid $35,000 on a charter to Bermuda in September. Meanwhile, over that timeframe the $10 million that Mayfield originally suggested the pension fund put into his firm's Genesis Fund grew to a $117 million investment in the fund's real estate investment trust, including a capital commitment of $25 million in cash, the SEC said. According to a yearlong investigation by the Detroit Free Press, the pension funds lost $480 million between February 2008 and late 2010 due to bad investments. The newspaper also reported that last Thursday the retirement system voted to sever ties with MayfieldGentry. The pension losses come as Detroit attempts to regain its financial footing after the downturn in the automobile sector. Last month, it signed an agreement to give the state more control over its severely weak finances. Link this Share this Digg this Email Reprints

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