By Ruth Musser-Lopez and Mark Gutglueck
The San Bernardino County Employees Retirement Association is yet hoping to sidestep a public scandal by dealing with an apparent effort by its board chairman to wring from one of its financial advisors some $63,500 to $137,500 in conference attendance accommodations.
The action by Louis Fiorino, an elected member of the panel that oversees more than $6.5 billion in pension fund assets for San Bernardino County government retirees, was a clear violation of the association’s bylaws and the government code and has potentially brought the entire board into disrepute. Moreover, it illustrated county government employees’ vulnerability with respect to the safeguarding of the money they have set aside and are counting upon to receive after they have ceased to actively work and earn paychecks. The retirement association board has been given absolute autonomy over those funds and how they are to be disbursed and invested. Fiorino’s action raised the specter of one of the association’s investment managers or advisors compromising the oversight and judiciousness that county employees and retirees expect of the board by means of kickbacks or gratuities in return for allowing the investment managers to steer investments in a way that would provide them with enhanced income, potentially at the expense of the participants in the pension system. As it turned out in the case involving Fiorino that came under scrutiny last week, it was the investment manager who balked at providing the gratuity and brought the matter to the attention of the association’s in-house attorney.
Unknown at this juncture is whether what occurred this year was a one-time aberration or the first time a lesion in the integrity of the association‘s fiduciary arrangement has been noted.
At its May 4 meeting, item 12 on the San Bernardino County Employees Retirement Association board meeting read “Discussion and possible corrective action in response to Trustee Louis Fiorino’s apparent violation of Board General Policy No. 016 (Solicitation Policy)”
That violation consisted of, the agenda item title said, “soliciting tickets to the Milken Institute Global Conference from an SBCERA-contracted investment manager.”
In a report to the San Bernardino County Employees Retirement Association board prior to the May 4 meeting, Michael Calabrese, the association’s chief counsel, stated that he “spoke with a representative of an San Bernardino County Employees Retirement Association asset manager. The representative reported that both she and another employee of the manager had recently received multiple voice messages from San Bernardino County Employees Retirement Association Trustee Louis Fiorino, requesting that the manager provide Mr. Fiorino and/or other San Bernardino County Employees Retirement Association trustees with tickets to the Milken Institute Global Conference, scheduled for late April and early May of 2017 in Los Angeles. By way of background, the manager serves as a sponsor to this conference. It is the Milken Institute’s practice to provide sponsors like the manager with a certain number of tickets to the conference, which those sponsors may use or give away in their discretion. Tickets to the conference are not available at retail to the general public, but are available to invitees. For invitees not offered complimentary tickets by Milken, the cost is $12,500.”
Calabrese continued, “The manager’s representative wished to check both with the manager’s compliance department and with San Bernardino County Employees Retirement Association’s staff, prior to responding to Mr. Fiorino, to ensure that any response that the manager might give would be in compliance with the law and any applicable ethical guidelines, including any San Bernardino County Employees Retirement Association-specific local rules.”
Calabrese said he “advised that a local ethics rule was indeed applicable, that he would speak to Mr. Fiorino, and that the manager need not speak to Mr. Fiorino further on this matter.” Calabrese said the representative informed him that, “after conferring with the manager’s compliance department, it had been determined that the manager would not provide the requested tickets in any event, irrespective of the San Bernardino County Employees Retirement Association’s views on ethical and legal aspects of the matter.”
Calabrese spoke to Fiorino about the matter the same day. Calabrese said Fiorino “confirmed… that he had made the solicitations described by the manager’s representative. Mr. Fiorino said he believed them proper because they were made ‘for the betterment of the trustees.’ While Mr. Fiorino said he was generally aware that the San Bernardino County Employees Retirement Association had a policy covering solicitations, he was unaware of its specific prohibitions. Prior to making the solicitations himself, Mr. Fiorino had requested that the San Bernardino County Employees Retirement Association’s CEO, Gary Amelio, solicit tickets from another manager who had previously offered one ticket. Mr. Amelio had refused, explaining that such solicitations would be inappropriate.” Calabrese said that Fiorino did “not confer with him before making the solicitations.”
Calabrese further noted, “The San Bernardino County Employees Retirement Association’s Solicitation Policy, General Policy No. 016, provides in pertinent part: ‘If a San Bernardino County Employees Retirement Association official has been informed that the San Bernardino County Employees Retirement Association does business or may reasonably be expected to do business with an entity, the San Bernardino County Employees Retirement Association official shall not communicate with that entity or any officer, agent, or employee thereof, to discuss, propose, solicit, arrange, or cooperate in the proposal or arrangement of any transaction, payment, donation, or solicitation other than those arising from the San Bernardino County Employees Retirement Association official’s duties on behalf of the San Bernardino County Employees Retirement Association, and relating to San Bernardino County Employees Retirement Association’s business or prospective business with the person or entity.’” Calabrese went on to state that “When a San Bernardino County Employees Retirement Association official ‘becomes aware that a violation of [the] policy may have occurred,’ the facts must be reported to the CEO and/or chief counsel, who must inform the board chair. In this case, because the board chair was the trustee in question, the vice-chair was also informed. The policy further provides: ‘In the event that a trustee knowingly violates this policy, the board shall consider, at the next available regular board meeting after such facts become known, such corrective action as may be authorized by law and by the San Bernardino County Employees Retirement Association’s by-laws and policies.”
Calabrese stated that “Based on the facts above, which are generally undisputed,” he had “reached the conclusion that a knowing violation of General Policy No. 016 by a trustee may have occurred, because Mr. Fiorino knew that the San Bernardino County Employees Retirement Association does business with the manager, that he was soliciting a ‘donation’ from the manager in the form of valuable tickets to the conference, and that this solicitation did not relate to the San Bernardino County Employees Retirement Association’s business or prospective business with the manager.” Because he had “become aware of facts indicating that a violation ‘may have’ occurred,” Calabrese said he was “mandated to place these questions before the board. The final decision on whether the policy has been violated, however, is with the board, as is the decision, in the event of a violation, on whether to take any ‘corrective action.’ The board’s policy regarding governance principles states that, when the board concludes that a trustee has violated that policy (which incorporates by reference other board policies regarding ethical conduct), the board by way of corrective action ‘may vote to publicly censure that trustee and the censure will be recorded in the minutes of the board meeting. Censure can include trustee’s removal from position of authority and/or committee membership.’”
Calabrese noted that there is nothing in the association’s bylaws or written polices specifying what corrective actions should or potentially could be applied if the board concluded a violation had occurred. He said that he was “making no recommendation as to what corrective action, if any, may be appropriate, as this is a matter entirely within the board’s discretion.”
When the chips were down, Fiorino offered a defense of his action, saying that there was nothing venal about his request for the tickets to the Milken Institute Global Conference in that he was seeking participation at the event by his fellow board members so they could collectively refine their ability as stewards of the association’s funds, and he was not seeking to personally profit by his solicitation.
Fiorino is a child support officer with San Bernardino County’s Child Support Services Department. He has worked for the County since 2000. Prior to being a county employee, Fiorino was a registered representative in the financial and insurance industries for Aetna, New England Financial and The Principal Financial Group for more than 22 years. As a registered representative, he developed group benefits, determined risk tolerance, set investment objectives, suggested asset allocations and provided sector analysis. He was previously licensed by the Financial Industry Regulatory Authority, formerly the National Association of Securities Dealers. Fiorino has been an elected trustee on the San Bernardino County Employees’ Retirement Association Board of Retirement since January 2011. He also serves on the Board of Directors for Teamsters Local 1932.
Ultimately, at the May 4 meeting, the board, consisting of Fiorino, Larry Walker, Jared Newcomer, John Michaelson, Vere Williams, Neal Waner, Oscar Valdez, Dawn Stafford, Glenn Duncan, Brendan Brandt, Anthony J DeCecio and Janice Rutherford did not vote and took no action against Fiorino.
Sources knowledgeable about San Bernardino County Employees Retirement Association operations said the board’s action overlooked the consideration that Fiorino wanted the San Bernardino County Employees Retirement Association to invest in the manager’s business and that the board was directing money to the company that was sponsoring the Milken Institute Global Conference which had access to the free tickets Fiorino was seeking.
The San Bernardino County Employees Retirement Association has declined to identify who the manager is.
The San Bernardino County Employees Retirement Association board’s actions failed to address the consideration that Fiorino appears to have run afoul of Section 89503 of the California Government Code, which at present prohibits an elected state officer or elected officer of a local government agency from accepting a gift or gifts from any single source in any calendar year with a total value of more than $470. In making his defense, Fiorino acknowledged he had received a ticket to the Milken Institute Global Conference, but was merely soliciting tickets for his colleagues.
Moreover, Fiorino falls under the requirements of Government Code Sections 87200 and 87202, which require that gifts to members of a public board such as that for a public employee retirement association be reported on statements of economic interests known as California Form 700s. The San Bernardino County Employees Retirement Association board is listed as category 5 of designated employee economic interest reporting requirements.
Persons in category 5 are required to make disclosure pursuant to Government Code Sections 87200 and 87202. Fiorino does not appear to have submitted a Form 700.
Adam Sands, the communications officer for the San Bernardino County Employees Retirement Association, told the Sentinel, “At the May 4, 2017 board of retirement meeting, it was undisputed that Mr. Fiorino did not act for personal gain, but rather to advance the education of trustees for the betterment of the system. The board concluded that such actions are not violations, and that Mr. Fiorino acted properly. The board also acknowledged that staff properly followed its mandate to put the decision before the board.” Sands added, “Finally, the board formed an ad hoc committee to recommend clarifications to the policy itself.”
By Ruth Musser-Lopez and Mark Gutglueck