Reverberations from Lehman investment continue

The wrangling over the aftermath of the state’s decision to invest $178 million in Lehman Brothers stock before the company collapsed took a messy turn today.

A complaint about a perceived lack of response to an OPRA request filed on behalf of state Sen. Joe Pennacchio turned into a debate on whether Pennacchio was putting the diversity of the State Investment Council in jeopardy.

In a press release, Pennacchio accused the Treasury Department of stonewalling a Republican staffer’s OPRA request, saying that it was ironic that the department was more concerned about collecting $79.50 in OPRA-related costs than investigating why it invested millions in a troubled company.

“It is obvious that we are being stonewalled,” said Pennacchio. “New Jersey’s citizens have a right to know why and how the Investment Council lost $115 of $178 million invested in a short period of time this summer prior to the sub-prime market collapse. The Lehman’s investment had huge risks and there were obvious personal ties to the New Jersey Investment Council when this failed decision was made. I wish the Treasury was as concerned with the $178 million investment as they are with getting $79.50 from an elected official doing his job.”

But a spokesman for the Treasury Department said that they’ve been working with Penancchio and legislative staffer Andrew Pratt on fulfilling their request. Granting large OPRA requests, he said, can take a long time – especially when it produced around 1,000 pages of relevant documents, all needing to undergo legal review.

“Let’s correct the record here. This is a broad request and stonewalling means we don’t respond,” said spokesman Tom Vincz. “What we’ve been doing is working with Mr. Pratt, who asked if we can release what’s reviewed. We said yes, we’ll do that. It was offered in the format he requested,” he said.

Meanwhile, the investment council’s chairman, Orin Kramer, said that Pennacchio’s premise is flawed. While three of the council’s members have past ties to Lehman Brothers, the council itself does not have any direct input on specific investment decisions. He repeated an offer to Pennacchio to meet either privately or publicly to “discuss our respective views of investment management.”

“Investment Council members had no involvement in the Lehman investment discussion; investment decisions are made by the public employees of the Division of Investment. Financial services stocks are down 57 percent this year; New Jersey has outperformed relative to other public funds in part because the division consciously had less exposure to the financial industry than its peers,” he said. “As with every other institutional investor, owning essentially any financial stocks has been a mistake which cost money. Incidentally, the sub-prime market didn’t collapse this fall; that happened in 2007.”

Moreover, Kramer argued, Pennacchio’s crusade could have the inadvertent effect of sacrificing diversity on the Investment Council.

Two of the three members who had a history with Lehman Brothers – Jose Claxton and Erika Irish Brown – are members of a minority group. In a conversation with, the only member of the council who Pennacchio mentioned by name was W. Montgomery Cerf, who is white.

“If the senator were to set time aside from putting out press releases, he might benefit from understanding how his state’s investment process works,” he said. “He might also learn more about highly qualified Council members who serve pro bono, bring diversity to our board, and whose reputations are affected by repeated innuendo.”

Kramer later said that “I think throwing around slanderous accusations about high quality people who serve pro-bono and bring the only diversity we have to that board is not constructive.”

Pamela Miller, a business executive who heads the African-American Coalition on Diversity, did not accuse Pennacchio of specifically targeting minority board members. But she did say he was engaging in a “witch hunt” that “appears to me to be very politically motivated” – especially considering that no members of the council had any say in the decision to invest in Lehman stocks.

“I hope not and I’m not going to make that leap because I have no factual basis to support such a statement, but I can tell you that having inclusion is, in and of itself, a worthy and necessary goal of this administration,” said Miller, who serves on the Sports and Exposition Authority and was a member of Gov. Corzine’s transition team. “Diversity in and of itself is a laudable goal, so we are inclusive and the representation on policy decisions for the public entity of the state of New Jersey reflects the people of New Jersey.”

The diversity angle angered Pennacchio, who said that ethnicity is irrelevant to the question of how the state lost $115 million in Lehman stock.

Pennacchio charged that Kramer and Miller were trying to blunt his complaint by interjecting race into the argument.

“These people think that they’re going to interject race into this issue. It’s shameful and they should resign,” he said. “I don’t even know what nationality these people are. I have no idea, and frankly I don’t give a damn. All I care about is their fiduciary responsibility… The OPRA requests didn’t ask anyone what color they were.”

Reverberations from Lehman investment continue