On the same day that the Boston Globe accidently released personal credit card information on half of its subscribers and on the same day that the prohibitive Democratic Party gubernatorial favorite was humiliated by his would be running mate, Steve Bailey of the business section of the Globe found a real issue to report on. In this incisive and hard hitting report Bailey checks in from Florida on a junket taken by the Middlesex retirement board trustees to a conference on investment strategies. A conference that they paid for themselves and apparently took vacation time of their own as well. http://www.boston.com/business/articles/2006/02/01/key_west_academy/
The second paragraph includes this line "Three years ago the system lost $37 million, or 7 percent of the fund, betting wrong in the risky world of currency trading." Unfortunately the truth suffers here a bit as he fails to mention that this loss appears to be the subject of an on going law suit against the firm responsible for custody of those funds.
Apparently a fellow by the name of Kneafsey was committing fraud or embezzlement in the currency trading and was reporting fraudulent balances to a custodial bank who apparently was verifying the amount of funds by only looking at the statements Kneafsey was preparing. The custodian could be excused for such incompetence if they weren't under contract for the express purpose of independently verifying balances. The custodians conduct bears even more scrutiny when taking into consideration that Kneafsey, sources tell me, was clearing those trades through another division of the custodians company. Since the custodian appears to have been making significant commissions on these currencies trades, they had to know the status of those trades in terms of profit and loss because they would be settling currency trades on a daily basis. If he took a 20 million dollar loss on trades you can bet that the compliance officer on that trading desk knew it. Mr. Kneafsey's untimely death apparently brought the scheme to an end.
Mr Bailey also fails to mention that the MBTA pension fund may have lost lost even MORE than Middlesex in this fraud and from what I understand they are unable to pursue the losses in court because of an agreement they had with their custodian. Why hasn't he pursued a story on Kneafsey's company? Who was he? How did he amass such a large amount of money under management? Who was clearing all his trades and what measures were they taking to assure suitability? What action has the attorney general taken against his estate? Did he embezzle the money or lose it? What is the SEC doing about it?
Junkets are a nice topic for a newspaper column but massive fraud , embezzlement and mis and malfeasance are what good books are made of. Perhaps Mr. Bailey could start looking a little deeper into this story and save the low hanging fruit for one of the cub reporters at the Globe. Or perhaps there is another agenda here relative to who wants ultimate control of these funds or who wants to rise in status at PERAC, the over sight body responsible for state and municipal pension funds?
In fairness to Mr. Bailey he did write on the subject previously but again only to criticize the Middlesex Board. http://www.boston.com/business/globe/articles/2006/01/13/clueless_in_billerica/
The perpetrator of the crime is mentioned in passing but Bailey seems to place the blame for a crime on the victim. No where in this piece or others does Mr. Bailey examine how a crime like this could have been committed against Middlesex and the MBTA nor does he explain how the over sight at the state level might have prevented it.
