crossposted from unbossed
A couple days ago, unbossed reported on the Senate's request that the Inspector General of the Pension Benefit Guarantee Corporation (PBGC) report on misdeeds under the prior administration connected with doling out a Strategic Partnership contract to manage $2.5 billion in PBGC assets.
Wednesday, the PBGC Inspector General issued her report.
And, let me just say that this report includes some of the most blatant corruption I've seen in awhile. . . . And that's despite the stiff competition lately in this area of endeavor.
Here are the problems that the PBGC-IG identified:
The actions taken by the former Director constitute a serious challenge to contracting integrity at PBGC. The former Director:
- Assumed de facto responsibility for key procurement actions, violating the principle of separation of duties and rendering PBGC vulnerable to allegations of bias, improper influence, or conflict of interest.
- Consulted with potential bidders about the impact of certain mandatory requirements on them and on others, as well as about proposed questions for PBGC procurement officials to ask during the bidders’ oral presentations.
- Had inappropriate contact with bidders during the "blackout" period when such contact was forbidden.
- Sought employment assistance from an executive employed by one the winning bidders for a Strategic Partnership contract to manage $700 million in private equity.
These actions violate basic federal government procurement ethics. Remember that the actions of the government and of government officials are those of an institution and people who are charged to protect the public interest. They swear an oath to "faithfully execute the duties of the office."
As the PBGC-IG says:
"An essential consideration in every aspect of the System is maintaining the public’s trust. Not only must the System have integrity, but the actions of each member of the Team must reflect integrity, fairness, and openness."
The former Director gave did not treat all bidders even handedly. He gave favored treatment to some.
For example, in one case he engaged in an extensive email and phone discussion with one bidder from BlackRock and asked him for to provide help in ensuring that the criteria for awarding the bid would make certain that BlackRock would meet the criteria, while other bidders would not:
The emails include discussion of getting together in person and by phone.
The former Director asked the BlackRock executive about the "minimum number of employees a Strategic Partner should have globally." After the executive failed to give a definite answer, the former Director explained the reason for needing a specific number: "... I think I need a cognizable cutoff future so that we can winnow the field easily."
In response the BlackRock executive wrote, "I will be self serving and say overall firm shld have at least 5,000 total employees. Getting more specific on global now, I wld suggest that at least 25 pct of total employees (and a minimum of 250 in total) shld be in non-US offices. I added the parenthetical to eliminate the 100 person boutique firm with 30 people overseas from consideration." [Emphasis added.]
At that point the former Director responded, "Any idea who that includes or excludes? . . . At the August 8 bidders’ conference, the potential bidders who attended were reminded of the RFP’s mandatory "firm size" requirement and that no firm should submit a proposal for the Strategic Partnership work unless it had thousands of employees. To their credit, PBGC senior leaders, including the Procurement Department Director, the Procurement Deputy Director, and the PBGC Treasurer, questioned the criteria for size, as established in the RFP. According to the Deputy Director of Procurement, "Requiring employees numbering in the thousands may be unsupportable. If we hide from [answering a question raised by a bidder about minimum size], it may look as if we have no rationale to support the requirement...." Mr. Millard addressed the issue in an email stating, "I don’t see why we need change rfp. Says thousands, means thousands."
Now you may wonder why the then PBGC Director was being so nice to bidders. If you cynically suspected that he wanted them to assist him in getting a nice new job, go to the head of the class.
Our review of the former Director’s voluminous email records disclosed extensive communication with a Goldman Sachs executive, occurring after the award of the $700 million Strategic Partnership contract. While we did not identify any evidence that the former Director was attempting to obtain employment directly with Goldman Sachs (or with any of the winning firms), we did find 29 emails between a senior Goldman Sachs official and Mr. Millard to assist him in his search for employment. For example, the former Director provided his resume, bio, and six news articles to the Goldman Sachs executive, who in turn forwarded the materials to others in the financial community. Employment assistance provided by the Goldman Sachs executive to the former Director included personal meetings, strategic advice, introductions to potential employers, and help with meeting arrangements.
. . .
The evidence of the 29 emails tends to contradict the written statement of the former Director, in which he asserted, " ... around the time I became aware of this audit, I became aware of a rumor that I was pursuing the Strategic Partnerships in order to increase my chances at post-PBGC employment with large financial services firms. This was ridiculous, as I already had numerous contacts at such firms and had worked in senior roles at two of them in the past."
The former Director advised us that the assistance was provided due to a "deep personal relationship" between him and the executive. He had also previously asserted that the executive was not actually involved in bidding for the Strategic Partnership contract. While the executive was not listed as "key personnel" in the Goldman Sachs bid, the former Director had requested, via email, that a subordinate provide the RFP to the executive. Further, on the day that Strategic Partnership contracts were awarded, the former Director sent the Goldman Sachs executive an email with the subject "Strat partner" stating, "U guys got 700 m in private equity." We concluded that the receipt of employment assistance from a winning bidder raises serious ethical concerns.
These and other instances of unethical conduct led the PBGC-IG to this conclusion.
The evidence of the 29 emails tends to contradict the written statement of the former Director, in which he asserted, " ... around the time I became aware of this audit, I became aware of a rumor that I was pursuing the Strategic Partnerships in order to increase my chances at post-PBGC employment with large financial services firms. This was ridiculous, as I already had numerous contacts at such firms and had worked in senior roles at two of them in the past."
The former Director advised us that the assistance was provided due to a "deep personal relationship" between him and the executive. He had also previously asserted that the executive was not actually involved in bidding for the Strategic Partnership contract.
While the executive was not listed as "key personnel" in the Goldman Sachs bid, the former Director had requested, via email, that a subordinate provide the RFP to the executive. Further, on the day that Strategic Partnership contracts were awarded, the former Director sent the Goldman Sachs executive an email with the subject "Strat partner" stating, "U guys got 700 m in private equity." We concluded that the receipt of employment assistance from a winning bidder raises serious ethical concerns.
The PBGC-IG summed up the duty of public employees to engage in ethical conduct.
PBGC must continue to work with its Board to determine how to ensure integrity as it contracts for investment services. Earlier this month, we reported on serious questions relating to the integrity of the procurement process for Strategic Partnership contracts to manage $2.5 billion in PBGC assets. We identified actions that PBGC and its Board should take to foster impartiality in future procurement activities and compliance with existing contracting laws and regulations (see attachment for full report.)1 This interim report was issued as part of our ongoing monitoring of PBGC’s plans for implementing the new investment policy and included our assessment of allegations brought to our attention by a whistleblower.
Based on our analysis, we concluded that the former PBGC Director, Charles E.F. Mr. Millard, had inappropriate contacts with bidders for the Strategic Partnership contracts and took actions incompatible with his role as Director.
We recommended a Board-level decision as to whether the actions of the former Director cast enough doubt about the fairness, integrity, and openness of the procurement to warrant cancellation of the contracts. We also recommended the establishment of a Board-imposed requirement that future PBGC Directors maintain appropriate separation of duties, with special care given to situations that are likely to create the appearance of improper influence or bias. The Board responded quickly and appropriately to our recommendations.
Thank goodness the Bushies are slowly, slowly getting their just desserts.
And, let me add that we owe the revelation of these misdeeds to a whistleblower. Here is what the PBGC-IG says:
A Special "Thank You" to the Whistleblower Reporting concerns about fraud, waste, or abuse to the Inspector General requires a lot of courage. The task is even more difficult when the issues of concern are subjective, involving questions of fairness, of impartiality, or of "appearance." I am grateful to the PBGC employee who first reported the questionable actions of the former Director to my office. Disregarding concern about how well the Whistleblower Protection Act could protect his/her identity, this loyal employee made a choice to put PBGC’s interests above the employee’s own interest to be free from possible retaliation. That choice will help the PBGC Board and PBGC leadership make the changes needed to maintain the public’s trust. This employee deserves our gratitude and thanks.