Investment salesman's actions under review
7/30/2006WASHINGTON - Investment marketer Clarke Blizzard believed in taking care of the people who helped him secure millions in Ohio pension funds for his clients to invest.
Mr. Blizzard, a salesman who for more than a decade pitched investments to state public pension funds and the Ohio Bureau of Workers' Compensation, showered one pension fund trustee, Patrick White, with lavish meals and travel and assisted him in searching for a job as a broker after he left the pension board, according to sworn testimony before the U.S. Securities and Exchange Commission.
SEC records state that Mr. Blizzard pushed his bosses to direct brokerage commissions to firms that hired Mr. White and another Ohio Police & Fire Pension Fund trustee, McCullough Williams, within a year of their departure from the pension board.
Board officials said last week they were not aware of concerns surrounding Mr. Blizzard's re-lationships with Mr. White and Mr. Williams until the board received a subpoena from SEC investigators in 2001 or 2002. Fund officials never called for an investigation.
The dealings of Mr. Blizzard - who helped clients win hundreds of millions of dollars in investment business from the workers' compensation bureau - are now being examined by a task force engaged in a corruption probe revolving around Terrence Gasper, the bureau's former financial chief who pleaded guilty in June to charges he took bribes in exchange for state investment business.
A Blade investigation shows that Mr. Blizzard's dealings with public officials reached well beyond the bureau.
Mr. White and Mr. Williams, as police and fire trustees in 1994, voted as part of a 5-3 majority to award $112.5 million in pension investment funds to a firm Mr. Blizzard represented at the time. The trustees selected Mr. Blizzard's firm despite the fact that the investment staff of the pension fund didn't even rank it among the top four money managers vying for the pact.
SEC records show Mr. Blizzard appreciated the help in winning the pension fund account.
From 1993 to 1996, Mr. Blizzard, a marketer for Shawmut Investment Advisors and Fleet Investment Advisors, persuaded about a dozen pension funds to allow his firm to invest their money, bringing more than $1 billion under Shawmut's management, and gaining himself more than $2 million in sales commissions - including at least $250,000 from the Ohio police and fire account alone, SEC records show.
To thank those who helped him make inroads in his marketing efforts, Mr. Blizzard persuaded his superiors to direct research commissions to firms employing people who helped him secure accounts - a group he referred to as "my brokers." In a January, 1996, memo to the head of trading at his firm, Mr. Blizzard listed Mr. White's and Mr. Williams' firms on his "broker budget."
"Responsible for the Ohio Police & Fire which is a $130 million small cap account. Also instrumental on the Ohio Workmen's Compensation account for $500 million," he wrote under the heading "U.S. Brokerage (Patrick White)."
And under the heading "Pryor McClendon (McCullough Williams)," Mr. Blizzard wrote: "Responsible for Ohio Police & Fire $130 million and Ohio Workers' Compensation $500 million."
He added in the memo: "Pat White and Mac Williams have both been extremely helpful on these accounts."
Mr. Williams and Mr. White were off the pension board before the January, 1996, memo and none of the firms where they took up employment had been involved in helping Mr. Blizzard secure the police and fire account.
Mr. Williams, a former deputy state auditor, left the board in January, 1995, and began working for Pryor, McClendon and Counts in September of that year. Mr. White's term on the board expired in June, 1995, and he began working for Maxus Investment Group in August, 1995, and U.S. Discount Brokerage in December, 1995.
Federal investigators alleged in SEC records that Mr. Blizzard caused his firm to allocate $30,000 in research commissions to Maxus beginning in August, 1995, in addition to directing equity trades to Mr. White at Maxus resulting in at least $1,610 in commissions.
Records do not indicate how much in fees, if any, was sent to Mr. Williams' firm.
The phone at Mr. Blizzard's last known address in Boston has been disconnected. He could not be reached for comment.
Mr. White, through his attorney, declined to comment for this story.
Mr. Williams, through his attorney, said he did not receive any gifts or favors from Mr. Blizzard nor was he aware of communications from Mr. Blizzard about directing commissions. Mr. Williams also said he was not "responsible" for Mr. Blizzard's firm winning the 1994 police and fire contract, and he stood by his vote, saying he "believed that they would provide the best return on investment" to the fund.
Additionally, Mr. Williams said through his attorney that he did not recall assisting Mr. Blizzard's firm with its efforts to manage money for the bureau of workers' compensation.
Mr. Blizzard - who was fired from Fleet Investment Advisors in May, 1996, amid an internal investigation into improper brokerage commissions - helped his next employer, American Express Asset Management, secure a contract in March, 1998, to manage $550 million in two hedge funds for the bureau.
In 1999, Mr. Blizzard's former firm, Fleet, which purchased Shawmut in 1995, agreed to pay $1.9 million in SEC fines for fraudulently using its client's brokerage commissions - a charged that stemmed from Mr. Blizzard's marketing practices.
In 2003, Mr. Blizzard was ordered to pay about $650,000 in fines after an SEC administrative law judge found that he assisted his former employer in fraudulently concealing that client commission dollars were used to obtain client referrals. But the initial decision in SEC vs. Blizzard was overturned on appeal after he successfully argued that his bosses knew about his relationships with brokers and he wasn't involved in preparing his firm's regulatory filings.
In a Boston courtroom in 2002 on the first day of testimony in SEC vs. Blizzard, prosecutors asked Mr. Blizzard under oath if he requested commissions for firms associated with Mr. White and Mr. Williams because of their help securing the Police & Fire account, Mr. Blizzard testified: "I wouldn't say that's true."
Then the prosecutor referred Mr. Blizzard to his 1996 memo in which he specified nine brokers, including Mr. White and Mr. Williams, who had been helpful to him in securing major accounts.
Mr. Blizzard said: "We're going back to the famous letter."
Testimony, memos, and other documents - all filed with the SEC - obtained by The Blade contain claims Mr. Blizzard cultivated Mr. White, a former Cleveland police officer and now the CEO of Cleveland-area brokerage firm Great Lakes Capital Partners, as a key contact by offering him gratuities and assistance finding a job in the brokerage industry.
The Blade provided copies of documents used for this report to Mr. White and his attorney, Mark Stanton.
"There are a lot inaccuracies in there," said Mr. Stanton, but he declined to elaborate.
Mr. White was friends with the bureau's former financial chief, Terrence Gasper, who became the first bureau official convicted as a result of the investigation that ensued after The Blade first reported in April, 2005, about the bureau's $50 million rare-coin venture with Tom Noe, a major GOP fund-raiser. Mr. White and Gasper attended the same Cleveland-area high school and records show they traveled to Philadelphia for a dinner in 2004 that included Gasper's son.
In 2002, the SEC contacted the workers' compensation bureau after noticing that fees paid to two firms associated with Mr. White - U.S. Discount Brokerage and Great Lakes Capital - were 20 percent higher than industry standards. Records show that the firms have collected $3.35 million in commissions from the bureau since 1999.
Mr. White's attorney has said that his client received a "target" letter from federal prosecutors investigating potential criminal violations at the bureau.
In 2003, SEC prosecutors alleged that Mr. Blizzard "provided gifts to White, such as free travel and air tickets, and assisted White to obtain a job as a stock broker."
In multiple interviews with investigators between 1997 and 2002, Christopher Roach testified that Mr. Blizzard asked him to help Mr. White get a job at Mr. Roach's Detroit brokerage firm, East-West Institution. In 2002, Mr. Roach was sent to prison and ordered to pay about $7 million in fines for his role in a kickback scheme involving the Teamsters Local 710 pension fund in Chicago.
Roach's SEC testimony in 2002 was by phone from federal prison camp at Eglin Air Force Base in Florida.
Asked what Mr. Blizzard did with Mr. White to win the Ohio police and fire account, Mr. Roach testified: "He took Mr. White everywhere. He paid for, anywhere we were at, Pat was his guest. He bought all of Pat White's airline tickets through his travel agency. Pat White, Clarke asked me to hire Pat White when Pat was stepping down from the Ohio Police and Fire as a trustee. He wanted him to be a stockbroker."
Mr. Blizzard's attorneys tried to discredit the entirety of Roach's testimony, accusing him of lying to investigators under oath and claiming that he had changed his stories. But Roach, in transcripts of interviews with investigators in 1997, 2001, and 2002 was consistent in his statements about Mr. White.
Other documents show that Mr. Blizzard looked to include Mr. White in special events. A Dec. 13, 1994 memo between Mr. Blizzard's co-workers states that Mr. Blizzard wanted Mr. White included in a "Celtics Event."
From 1987 through 1994, McCullough Williams represented state Auditor Thomas Ferguson on all five of Ohio's public pension systems. Records show that Mr. Williams, now a senior vice president for marketing with Pacific American Securities, used some of the contacts he made as a trustee to ease his transition into the investment industry.
In 1995, after assisting with Jim Petro's transition as state auditor, Mr. Williams joined Pryor, McClendon, Counts & Co. where he became a senior vice president and helped to develop the firm's Midwest institutional brokerage business.
Mr. Blizzard in 2002 testified that Mr. White introduced him to Mr. Williams when they served on the police and fire board and that the former deputy state auditor became his contact at Pryor. In 1996, after Mr. Williams joined Pryor, Mr. Blizzard included Pryor on his "broker budget."
Mr. Williams, through his attorney, Percy Squire, told The Blade that he asked "Mr. Blizzard and other Shawmut officials for the opportunity to provide brokerage services for their asset management products in 1996."
Other memos show that Mr. Blizzard directed at least $4,994 in commissions to Pryor in 1994, before Mr. Williams was an employee of the firm.
Mr. Williams, through his attorney, said he never had a business relationship with Pryor before joining the firm in September, 1995. He also said he never asked Mr. Blizzard to direct commissions to Pryor before Mr. Williams joined the firm, he said.
To bolster his argument for including Pryor on Shawmut's "broker budget," Mr. Blizzard stated in his memo Pryor was a "minority firm" and noted that "it is very important for big state funds to have managers that utilize minority firms. I found this to be true with Ohio..."
In court, Mr. Blizzard testified that rules in Ohio required public pension funds to direct 20 percent of brokerage to minority firms. No such provision exists.
William Estabrook, the executive director of the police and fire pension fund, said last week that the agency never called for an investigation into the relationships between Mr. White, Mr. Williams, and Mr. Blizzard because the agency did not know of the concerns until it received a subpoena from SEC investigators in 2001 or 2002.
"I think we were [too] uninformed and naive to believe that there was that much access and availability," Mr. Estabrook said after reviewing SEC documents obtained by The Blade. He said the relationships between trustees and investment marketers were a concern. "It is a proven fact that it is a concern and it was expressed by the chairman and the staff followed up on it in late 1995," he said.
Joe Walter, a retired Toledo firefighter and the city's former safety director, served as chairman of the pension fund during the mid-1990s. Mr. Walter, during his service to the fund, worried that conflicts of interest influenced some of the board's investment decisions.
Mr. Walter - who in 1994 voted against giving Mr. Blizzard's firm $112.5 million to manage - expressed concern at the time about the selection process.
Before the vote, Mr. Walter, who was chairman at the time, asked staff for its comments on its finalist firms. Staff named its top four choices, none of which included Shawmut, but the board still voted 5-3 to select Mr. Blizzard's firm.
Mr. Walter, in an interview last week, said Mr. White was solely focused on investments when he was a police and fire pension trustee, even though the board had a number of responsibilities to its membership.
"Pat came in and day one was all about investments," Mr. Walter said. "As that went along, I didn't always agree with his recommendations."
Mr. Walter said Mr. White introduced Mr. Blizzard to the board, but the former firefighter was not aware of any business ties between Mr. Blizzard and any of the trustees.
In 1995, Mr. Walter put his concerns about perceived conflicts in pension fund investments in a letter to Theodore Hall, police and fire investment director. Mr. Hall then sent a letter to all of the funds investment managers in an effort to develop a disclosure policy.
Mr. Hall, who has served the pension fund's investment department for more than 28 years, testified during Mr. Blizzard's 2002 SEC trial that he didn't know of any financial relationships between the pension fund trustees and the investment marketer. Mr. Hall was not made available for an interview.
Mr. Hall also testified that his staff had been instructed not to have contact with Mr. Blizzard, then with Northwinds Marketing which represented American Express, saying "... we prefer not to deal with Mr. Blizzard."
But asked if trustees continued to deal with Mr. Blizzard, Mr. Hall testified in 2002: "I believe they still do."
Contact Steve Eder at: seder@theblade.com or 419-724-6272.