Ex-chairman’s deals overlapped Retirement Board investments

Edward Theobald may have been ousted from his role of chairman of the New Hampshire Retirement System for a deal that he said never ended up participating in. But Theobald’s Boston firm – Maiden Lane Partners LLC – was involved with three other companies that had business in front of the board.

The former chairman’s firm:

• Shared an office with Northwinds Marketing Group, which the retirement system invested in, while Securities and Exchange Commission was considering sanctions against Clarke Blizzard, an executive vice president at Northwinds. (The SEC later dismissed the sanctions.) Maiden Lane wrote a $4,000 check to Blizzard in January of 2004 – who seven months later went in front of the retirement board to market yet another fund.

• Had agreed to invest $300,000 in Prism Ventures, which had evaluated the board’s potential investment in Hermes Technology LLC, a start-up that Theobald had considered investing in himself. The Retirement Board itself has invested $80 million in Prism’s funds

• Closed a deal with Pine Street Advisors LLC, a company through which the Retirement System invested at least $10 million. This deal – which was discussed at the board level — would advance Theobald’s firm $15,000 a month.

Theobald – who did not return repeated phone calls – has disclosed his investments to various degrees, but the public and most board members did not know the extent of his dealings.

“Jesus, I feel like we were totally in the dark,” board member William Zolla — a Republican lawmaker from Derry – said to New Hampshire Business Review when told about the investments. “If it is important enough, it should have been brought in front of the board. I would think I would like to know about it.”

Theobald, who had served as the Retirement Board’s chairman since 1997, was replaced on Oct. 5 in the wake of the controversy that arose after the proposed Hermes deal was revealed. Theobald had said he was approached by the company to sit on its board and for him or 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 declined to reappoint Theobald, partly because of ethical concerns raised by the proposed Hermes deal, and the Executive Council approved his replacement — Charlton MacVeagh — on Oct. 5. The attorney general also has launched an investigation of a particular transaction involving Theobald, but would not disclose more details.

Legal troubles

Theobald is half-owner of Maiden Lane Parnters, with James H. Kelly (who also did not return phone calls), which was located in Suite 1420 at 125 Summer St. in Boston from at least April 2001 to January 2004, according to Retirement System records.

Northwinds Marketing Group gave the same address to the Retirement Board in November 2002.

In August 2004, Theobald reported that the companies shared office space in a disclosure statement filed with the Retirement Board, but he did not disclose that fact in his disclosure statements of 2002 and 2003. It is unclear how long the two firms actually shared an office.

Northwinds – which is based in Minneapolis — was brought in at the end of 2000 to market American Express Asset Management Group (AEAMG) products. The Retirement Board already had an account with AEAMG. Clarke Blizzard, who had worked for AEAMG since 1996, was the Boston area contact person for the system, according to a letter from Northwinds dated Nov. 18, 2002 — shortly after the Retirement System requested that its account be managed out of the Boston office.

Blizzard was having legal troubles at the time because of allegations stemming from his former employment as an associate at Shawmut Investment Advisors Inc. The Securities and Exchange Commission had said that Blizzard helped Shawmut hide from its clients the practice of using clients’ money earmarked for brokers’ commissions to pay brokers for their referrals, or — in the case of the a Teamsters pension plan – to pay brokers for accounts outright.

By the time the Retirement System switched its account to Blizzard’s Boston office, the system’s staff had already learned of Blizzard’s legal troubles from an American Express SEC disclosure form, according to documents on file with the Retirement System.

Blizzard never had asset management responsibility while with American Express “and therefore … we do not think there is any issue for the NHRS investment with American Express,” according to Retirement System Consultant Anthony V. Minopoli.

An SEC law judge ruled against Blizzard on June 13, 2003, and fined him $100,000, ordered him to pay $548,233 of “ill-gotten goods,” and suspended him from associating with investment advisers for 90 days.

Blizzard appealed the ruling, and he continued his relationship with Theobald’s firm, as evidenced by a $4,000 check from Maiden Lane (still at the Summer Street address) to Blizzard in January. Boston Northwinds continued to enjoy a good relationship with the Retirement System, as seen in some letters comparing it favorably with that of the Minneapolis office in April 2004. (By that time, according to one record, Maiden Lane had moved out of the Summer Street office.)

On Aug. 10, 2004, six weeks after Blizzard won his appeal, he was before the Retirement Board presenting an investment proposal in Technology Venture Partners LP – a mid-stage high-technology venture capital fund. Four days later, on a disclosure form dated Aug. 14, 2004, Theobald said that Maiden Lane Partners shared an office with Northwinds, but the form did not mention that Blizzard was working out of that office. Board members did not recall any discussion of their connection or Blizzard’s legal history at board meetings.

The board committed to invest $10 million in TVP, with $2.5 million invested as of March 31, 2005.

The number at Northwinds’ Boston office is no longer in service. A fax to Blizzard’s home and calls to Northwind’s Minneapolis office were not returned by deadline.

Prism venture

Theobald also had an interest in the company that was evaluating Hermes Technology LLC, and it was Hermes’ deal that partly led to his oust from board.

Maiden Lane Partners had agreed in 2001 to invest some $300,000 in Prism Venture Partners, a company brought in to conduct due diligence on the Hermes transaction. For a while, Theobald had directly invested in Prism funds, but at the end of 2002 it was Maiden Lane that had more than $134,000 invested in funds managed by company. Theobald still had an interest in Prism funds in August 2005, according to his disclosure statement, though the amount of that investment was not disclosed.

The Retirement System also had invested $80 million in Prism funds by March 2005, according to Retirement System documents. It last voted to increase its investment in July 2004. There was no mention in the board’s July 2004 minutes of any discussion of Theobald’s interest in the company. Board members also don’t recall any such discussion.

To counter the suspicions, principals at Hermes turned to Joseph Scanlon, a principal in the firm and a representative of Ark Asset Management, a company that provides investment advice to the Retirement Board.

Scanlon also had a relationship with Theobald. Scanlon had previously represented Pine Street Partners before the Retirement Board, according to Theobald in a June 10 letter explaining his actions to the board. At the same time, Maiden Lane was also investing in Pine Street, a side investment that was approved by the retirement board at the time. (See “Another retirement board deal raises questions,” Oct. 12, NHBR Daily.)

As an Ark representative, Scanlon also had treated Theobald to a $200 game of golf, according to Theobald’s 2005 disclosure form filed with the state Retirement System. (Subsequently, in that June 10 letter, Theobald said he was unaware that Scanlon represented Ark.)

It was Scanlon who approached Theobald to invest in Hermes in 2004. Indeed, according to the original documents, Theobald was to be given a 2 percent interest in Hermes.

Theobald said he never ended up investing in Hermes, and later documents do not list him as one of the investors. However, he voted to delay a vote terminating the Retirement Board’s investment in the company until Hermes made a presentation, a vote that board later concluded violated its ethics policy.

It was a May 2005 letter from Ark to the Retirement Board about Scanlon’s dual role that led the board to embark on the ethics investigation. Ark had allowed Scanlon to resign from the company, the letter said.

But in February 2005, the hope among Hermes investors was that Scanlon would smooth things over because of his relationship with Theobald.

“I am uncertain exactly what to recommend of Ed and I know you two are very close,” Tom Stickel, a Hermes investor wrote Scanlon on Feb. 3. “I guess I would simply say to Ed, please take care of [Retirement Board Chief Legal Counsel Alan] Cleveland … I’m certain you and Ed will figure this out ….”

Scanlon forwarded that message to Theobald an hour later.

At first, Hermes investors were concerned about the involvement of Prism, which they knew very little about. But two days later, Scanlon said that he talked to Theobald and Minopoli, who is vice president of Norwalk, Conn.-based Evaluation Associates, and assured them that things would go smoothly.

“prism very close to ed and tony, ed assures vetting will be quick …. eds fine and their prism will do vetting to keep Cleveland away …” according to a Feb. 5 e-mail sent by Scanlon.

According to Theobald’s June 10 letter, Prism was brought in because the “Hermes people” (including Scanlon) were frustrated over the lack of due diligence progress, and that Minopoli suggested Prism because it had the “deep technical expertise.”

Prism ended up pointing out some major flaws in the Hermes project, which led the board to withdraw the investment. Prism’s concerns also had been a contributing factor in leading Theobald to back away from the project, Theobald said.

In that letter, Theobald wrote: “I did not play any role in purporting to be an advocate for Hermes regardless of any impressions that one might take from what I view as self-serving e-mails from Mr. Scanlon.”

The letter did not mention Theobald’s interest in Prism. Calls to Prism were not returned. Cleveland declined comment on the matter.

A third deal

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 …”

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 FDCC, and FDCC 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.

Pine Street Advisors didn’t not return calls for comment. Cleveland wouldn’t comment on his previous opinion, except to say, “The board took the action that it took based on the information that it had time.”