Facing FBI probe, PSERS backtracks on disclosure that staffers were on both sides of real estate dealings · Spotlight PA

HARRISBURG – Amid an FBI investigation, the mammoth PSERS retirement plan rejected as poorly worded an official disclosure form that said its top investment staff were also paid by a firm that was tasked with managing its Harrisburg real estate.

The fund said that in fact none of its staff received “additional compensation” even though the forms stated that they were paid employees of both the retirement plan and the real estate company. The $ 64 billion fund said it filed substitute reports with the IRS “to correct this mistake.”

The announcement of the plan came in response to questions from Spotlight PA and The Inquirer – and after federal prosecutors received information about the $ 1.6 million purchase of the former Harrisburg Patriot News building at 812 Market St Properties.

PSERS said it changed the required disclosure forms for the nonprofit 812 Market Inc., which was founded in 2017 to maintain ownership of the Harrisburg real estate. The forms continue to state that PSERS Chief Investment Officer James H. Grossman Jr. and two of his employees are on the board of 812 Market Inc., whose board members are top executives from PMI Property Management, Inc to the real estate.

While the original forms state in one section that Grossman and the others received no money from their board membership, it also states elsewhere that he and the others, Deputy Charles Spiller and Senior Real Estate Manager William Stalter, work for and from PMI get paid for it.

“The officers and directors of 812 of Market Street, Inc. are employees of PMI Property Management, Inc …”, the documents say in part. “PMI Property Management, Inc. pays the officers of 812 Market Street, Inc.”

Grossman is the highest paid employee in the state of Pennsylvania, making $ 485,421 a year. Spiller (and another surrogate Grossman) are the second highest, making $ 399,611. Spiller is the leading provider of real estate investments in the fund and informs its board of directors about such purchases. Stalter, who is also a real estate expert, will receive $ 241,801.

Attempts to contact the three PSERS officers have been unsuccessful. PMI executives Eric Kunkle and David Dyson declined to comment. For the management of the properties, PMI received $ 30,000 annually for the past fiscal year. No one has been charged with any crime in connection with the state investigation into PSERS.

PSERS is short for Pennsylvania School Employees’ Retirement System. As one of the largest retirement plans in the country, it sends more than $ 6 billion in checks annually to 265,000 former teachers and other retired public school workers. It is backed by its investments and payments from professional educators and taxpayers.

The fund, which has come under increasing criticism for its unremarkable investment returns, has tarnished since the federal investigation was announced in March. As previously reported by Spotlight PA and The Inquirer, federal prosecutors and the FBI are using a grand jury and subpoenas to investigate Harrisburg property purchases, as well as the board’s acceptance of a figure last year that falsely exaggerated its investment gains. The board later reversed course in April, saying that newer school employees would have to pay more for their retirement starting July 1.

State Senator Katie Muth, D., Montgomery, who became a member of the PSERS board this year, said Monday she asked fund management for information about the Harrisburg charities and real estate investments but never received any responses. The answer, she said, was, “We’re still checking.”

In its statement on Monday, the pension system said it had set up nonprofits to own real estate as a buffer against lawsuits “to limit legal risk.”

PSERS did not say when it submitted the revised forms. As previously reported by The Inquirer and Spotlight, prosecutors searched subpoenas dated March 24 for information about the Harrisburg property. At a board meeting closed to the public and media on the 5th of PSERS to contact the FBI investigation, inform the board of the disclosure forms and see if the staff were paid by the real estate company and if the board was at all knew the nonprofits were being formed, sources said.

The fund has set up about half a dozen nonprofits to hold titles in its roughly 15 real estate investments across the country, IRS records show. While Monday’s statement cites only one, 812 Market Inc.’s public records show that the same incorrect language was found in filings for two other nonprofit PSERs, one for their headquarters and another for a mall in San Antonio, Texas .

Before the board released its statement, reporters asked Charles Elson, a finance professor at the University of Delaware and a corporate governance expert, to review filings known as 990s, which are named for their official IRS form number. He said they were either “poorly worded” or had an obvious conflict of interest for PSERS.

“It puts these people on both sides of the deal,” said Elson. “You are an employee of the pension system, but why do you work with a company and get paid by a company that does business with the pension fund?”

While PSERs invested its billions mostly in non-public stocks, bonds, and private equity firms, it has also bought some real estate direct and bought $ 1.1 billion worth of real estate. Its holdings are eclectic – too much, critics say – ranging from a mall in Ft. Lauderdale to RV parks in Michigan to a pistachio orchard in California.

In 2017 PSERS started buying properties near the place of residence. The agency kept the purchases a secret and kept the plans a secret. Apart from the demolition of the Patriot News building, nothing visible was done on the property. At one point, fund managers advised the board that the plan could potentially work with Harrisburg University of Science and Technology on an office tower, but the university recently said it hadn’t come of that.

The first major purchase in Harrisburg was the $ 1.6 million purchase of the Patriot-News print shop and offices in late 2017. Over the next three years, the fund spent an additional $ 1.4 million to buy seven more properties, a mix of buildings and parking. According to the fund’s internal documents, an additional $ 7 million was spent on demolition and “site development” costs.

In another PSERS development, the fund released a separate statement on Monday regarding its decision to pay private lawyers for eight unnamed employees. It released the statement a day after The Inquirer published a story about how the agency will pay up to $ 40 million in legal fees each year for employees involved in an investigation. The fund will also pay employee defense lawyers until each lawsuit is completed.

The fund said it was “obviously unfair” to force its employees to pay for lawyers and said that this fund could get any money back if “an employee is later found guilty of a crime”.

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