May 4, 2012
A May 3, 2012 The Wall Street Journal article, A First for US Public Pension Fund: Bankruptcy: NORTHERN MARIANA ISLANDS' FUND COULD RUN OUT OF MONEY IN 2 YEARS, described how the author had predicted and even warned of the failure tens years before the collapse. The article portrays the CNMI as a desperate struggling territory. So desperate that, “It's considering allowing Japan to unload tsunami debris on one of its unoccupied islands,” the author writes.
Forbes Magazine also published an article yesterday about the mismanaged fund. The article by Edward Siedle entitled Failure to Heed Early Warnings Led to Failure at Northern Mariana Islands U.S. Pension discussed ten year old kickback schemes and “conflicts of interests from Wall Street stockbrokers posing as pension fund specialists that were undermining pension returns.” He wrote:
According to today’s Wall Street Journal, in October 2009 the retiree participants in the fund filed a lawsuit against Merrill Lynch, the investment adviser to the fund since the 1980s. The lawyer representing the retirees had, at the suggestion of one or more attendees at my speech, spoken with me before the suit was filed. Apparently the pension fund’s board of trustees refused to join the lawsuit, instead blaming government failure to make contributions and over-generous benefits as the real culprits. Let me assure you that while decades of tainted investment advice may not be the sole cause of the demise of the plan, it is, in my opinion, a leading factor. Further, it was no secret, even a decade ago, that the integrity of the plan’s investments had been undermined by adviser conflicts.Respected economist Bill Stewart has warned of the consequences of the mismanaged NMI retirement fund for decades. He remarked on the Forbes Magazine article stating:
“To those in the NMI who still hold out the false hope that a pension obligation bond will solve the Fund’s problems — read the article below which appeared in one of the most prominent publications available from the American financial sector — if not the entire world. I refer to Forbes Magazine.In a May 4, 2012, letter to the editor Mr. Stewart talked about the current status fund:
Then ask yourself in view of the dismal investment reputation the NMI government has created for itself — why would anyone purchase a POB from such an inept government that can not even pay it's hospital bills or pay debts to creditors resulting from awards adjudicated in it’s own court system? What does it take to wake people up that the POB is not a viable solution?
The problem with the NMI's defined benefit plan is that the various administrations abandoned the DBP and along with it the promise to the loyal members of the DBP, with the result that the retirees' own government betrayed its own people and made a Ponzi of their retirement plan. The NMI government has intentionally made the DBP to now resemble a Ponzi by cutting the Fund’s base of continuing monetary contributions by encouraging active members to withdraw their money and participant in an entirely inadequate defined contribution plan. (For more on this subject check out http://kixproductions.com/cnmiretiree/)Mr. Stewart has written over 50 letters to the editor warning of the dangerous practices related to the fund. It is unfortunate that his wise words were not heeded.
It need not have happened in the first place and now look at the mess the government created and the legal chaos that currently prevails.
While the fund was shrinking numerous attorneys and consultants profited and increased their own bank accounts substantially from fees charged to the fund. The Saipan Tribune reported that in just 4 years the retirement fund spent over $9 million on professional fees, including "actuarial service fees, audit and accounting fees, financial consultant fees, investment management fees, legal service fees, and PCT custodial fees."
The $9 million figure does not even include the fees of Boston bankruptcy attorney Jeremy Coffey who was earning between $475 and $1,000 an hour or any of the in-house counsels.
The Tribune reported that legal fees alone amounted to $862,631.70. From the Saipan Tribune:
Based on at least January 2010 to February 2012 data that Cruz gathered, the law firm of Camacho & Alepuyo, and later of Viola Alepuyo, the Fund board counsel, was paid over $325,000 in monthly legal fee/invoice.
The range of the monthly legal fee/invoice for the Camacho & Alepuyo law firm, and later to Viola Alepuyo, is from $7,155 to $23,540.
During the same period of January 2010 to February 2012, the Fund also paid for legal services provided by: Deborah E. Fisher, $5,300 in May 2010; Fisher Huesman LLC Trust Account, $15,000 in 2011; and the Law Office of Braddock Huesman, a total of over $46,000.