Fortune: "There is a strong case" General Catalyst violated New Jersey pay-to-play rules
Fortune magazine's Boston-based correspondent Dan Primack has been a longtime critic of PandoDaily. He has also been an enthusiastic defender of the financial industry and a stalwart defender Gov. Chris Christie's pension officials.
So it is pretty astounding that, in responding to our reporting of the burgeoning pension scandal engulfing Gov. Chris Christie and Massachusetts gubernatorial candidate Charlie Baker, Primack aggressively criticizes VC firm General Catalyst. He even goes so far as to argue there's a strong case they violated New Jersey's "pay to play" rules.
Here's Primack, writing up his interview with Baker:
Did General Catalyst violate New Jersey "pay-to-play" rules?
I believe there is a strong case that it did. New Jersey has much stricter rules than does the SEC, and covered persons include anyone "associated with an investment management firm who is primarily engaged in the provision of investment management services." Among the definitions of such services is "the provision of financial advisory or consultant services."
During yesterday's interview, I asked Baker what his role was at General Catalyst. He said: "As an XIR we have two roles. One is to work with the firm to seek out and find interesting companies although, in the end, the decisions aren't made by us. The other role is to help and work with certain companies in which the firm does invest as a domain expert."
To me, that sounds as if he was providing consultant services (i.e., what is explicitly prohibited by New Jersey law). Which is exactly what I told Baker, who quickly replied: "No," but then proceeded to basically say the exact same thing again.
He tells me that he was briefed on firm policies upon joining, but that he "can't remember" if political donations were among the topics of discussion.
Primack joins a former SEC chairman, a former Assistant U.S. Attorney, a former FEC General Counsel and watchdog groups in raising serious legal questions about the Christie/Baker scandal.
He also repeats something I noted in my appearance this week on MSNBC's Rachel Maddow Show: if you take the Christie administration at its word (granted, a big "if"), Christie officials do not appear to do even the most minimal form of due diligence in awarding public pension contracts. As Primack says:
It also is worth noting that New Jersey Investment Council staff does not actually run listed names through the state's database of political contributions. Moreover, it does not check alternate sources -- such as firm websites -- to see if the firm may have inappropriately excluded certain individuals.So, if you take Christie officials at their word, they simply rely on firms to self-report violations of the pay-to-play rules, and the Christie administration doesn't even bother to check the New Jersey State government's own records to see if violations are occurring. In other words, before awarding investment management firms pension contracts, the New Jersey state government apparently doesn't even look at its own website to see if investment management firms have made contributions to state politicians or parties.
A source familiar with the situation blames a lack of resources, particularly when it comes to larger investment managers...
Of course, there's no reason to simply to take the Christie officials' word on that, which is why our reporting will continue. But even if you do take their word on it, such negligence would be troubling, to say the least. It would also be no legal excuse for violations of the rules.
[Illustration by Brad Jonas for Pando]