Another retirement board deal raises questions

Ed Theobald was ousted from his role on the New Hampshire Retirement System, in part because of a deal in which he never ended up participating.

But Theobald had earlier reached a deal with Pine Street Advisors LLC, a company through which the Retirement System invested at least $10 million. This deal advanced Theobald’s own firm, Maiden Lane Partners, $15,000 a month.

Theobald’s Pine Street deal was fully disclosed and sanctioned in 2004 by the Retirement Board without Theobald present. As a condition of his deal with Pine Street Advisors, Theobald had said he would recuse himself from any meetings or discussion about Pine Street and that he wouldn’t make any money off of the Retirement System’s investment in Pine Street.

But the deal did raise enough issues for the board’s attorney – Alan Cleveland — to issue an advisory opinion, though that opinion concluded the deal “would not represent a conflict of interest, should not give rise to a reasonable appearance of a conflict …”

Cleveland wouldn’t comment on his previous opinion to NHBR Daily, except to say, “The board took the action that it took based on the information that it had time.”

Neither Theobald nor Pine Street Advisors would return calls for comment by deadline.

Theobald left the board on Oct. 6 in the wake of a controversy surrounding another deal, this one involving Hermes Technology LLC. Theobald has said he was approached by Hermes earlier this year to sit on its board and for him, or for Maiden Lane Partners, to purchase stock in it.

Theobald said he decided not to invest in Hermes. However, he voted to delay a vote terminating the matter until Hermes made a presentation — a vote the board later concluded violated its ethics policy.

Gov. John Lynch said he declined to reappoint Theobald as chairman of the Retirement Board, partly because of ethical concerns raised by the Hermes proposal. The Executive Council approved Theobald’s replacement, Charlton MacVeagh, on Oct. 5.

The attorney general also has launched an investigation into Theobald and a particular transaction, but has not disclosed any more details.

Advisory opinion

The Pine Street deal, on the other hand, has not aroused any controversy.

In July 2002, the board approved a $10 million investment in Pine Street Institutional Partners Ltd., an offshore fund located in the Bahamas and managed by Pine Street Advisors, based in New York.

In April 2004, Pine Street Advisors approached Theobald’s firm, Maiden Lane Partners, with a deal involving a Virginia-based company called First Dominion Capital Corp., or FDDC. Under the deal, FDCC would hire Maiden Lane to solicit investors for Pine Street. Pine Street would pay PDCC, and PDCC would pay Maiden Lane $15,000 a month in advance against 35 percent of any management fees earned and 10 percent of any incentive allocation fees earned by Pine Street.

The sides agreed that none of the investors Maiden Lane brought to Pine Street could be involved with the Retirement System and Theobald couldn’t advocate for Pine Street in front of the Retirement Board. But he couldn’t speak against it either. The contract also forbade Theobald from making any negative comments about Pine Street.

Cleveland, in an advisory opinion written at the time, said the safeguards were strong enough to guard from any conflict of interest. As for the appearance of conflict, “greater weight should be attached to the intention and the motives of the parties involved than the outward acts and appearances,” he wrote.

While Pine Street was indirectly paying the Retirement System’s chairman, the system’s board discussed whether the board should invest another $8 million in the Pine Street fund. If it did so, the board’s advisers noted, it would violate the board’s own policy not to exceed 15 percent of the assets of any fund. The board decided to postpone additional investments after being told by its consultant that the fund – while still making money – was not performing as well as comparable funds.

While the minutes did not reflect whether Theobald participated in this discussion, it also made no reference to his recusal. – BOB SANDERS