An investigation by The Atlanta Journal-Constitution first revealed concerns about investment adviser Larry Gray’s interactions with public pension boards. In the wake of the newspaper’s investigation, Atlanta’s largest public pension board changed its rules on how it would work with pension advisers, and all three city boards requested an audit of the money it had invested in Gray & Co.’s fund.
Atlanta investment adviser Larry Gray has resigned his role as consultant to the city’s police and fire pension boards, weeks after a similar exit from the city’s largest pension system.
His decision to leave comes even though the two boards had supported him in the face of reports that he failed to make key disclosures to state and federal regulators, as well as to the boards themselves.
In Oct. 18 letters to the two boards, Gray cited media scrutiny of his firm’s dual roles as a consultant advising the pension funds on the best place to invest their money, and owner of an investment fund profiting from those decisions.
“As the media coverage continued, we decided to revisit the topic of Gray & Company serving in a dual role with our clients,” Gray wrote.
Calls to Gray’s firm weren’t returned Friday.
In July, the Atlanta Journal-Constitution detailed how Gray had pitched his firm’s alternative investment fund to the city’s General Employees board, raising questions of whether he had adequately disclosed Gray & Co.’s financial stake.
The AJC subsequently reported that while Gray was touting the firm’s investment fund to pension boards, he was paying off $425,000 in federal tax liens and a $1 million lawsuit settlement that accused him of fraud. Gray failed to disclose those personal financial problems to federal and state regulators.
After the General Employees fund committed $28 million to Gray & Co.’s fund, board member Angela Green lodged a complaint with the U.S. Securities and Exchange Commission. She said Gray did not adequately disclose his firm’s ownership of the fund.
The police and fire boards have committed a combined $36 million to the same investment fund but have not criticized Gray for a lack of transparency.
Despite his firm’s resignations as adviser to the three boards, Gray & Co. will continue to manage the investment fund under a 10-year agreement.
However, the three pension plans last month ordered a forensic audit of the investment fund. They agreed to pay Atlanta-based GlassRatner Advisory & Capital Group up to $20,000 to conduct the audit of the pensions’ combined $64 million commitment.
The AJC also has learned that the SEC has issued subpoenas for documents from at least four of the pension boards Gray advises, including all three in Atlanta. The SEC won’t confirm or deny an investigation.
Gray & Co.’s resignations came only 10 days after the police and fire pension boards had opted in meetings on Oct. 8 to retain Gray’s firm as their adviser.
Tony Biello, a retired lieutenant who is co-chairman of the police pension board, which oversees roughly $836 million in retirement funds, said Friday he was disappointed Gray was resigning.
“I’m telling you, the guy did a lot of great work for us. I’m crushed,” he said.
Biello said he is reserving judgment on the allegations against Gray.
“What’s true? What’s not true? Nobody knows,” he said. “I think he’s a great guy. He’s always welcome to manage my money.”
But Mayor Kasim Reed was pleased by Gray’s decision.
“We believe it is in the best interest of the city of Atlanta pension funds to maintain separate consulting and investor advisor relationships for the management of the city’s pension plans’ assets,” Reed said in a written statement Friday. “Gray & Co began serving as a consultant to the three funds as early as 1996. Over the years, the city has been able to earn solid investment returns. Gray & Co’s resignation as consultant for all three pension funds is appropriate.”
Gray resigned as adviser to the $1.2 billion General Employees pension plan on Sept. 30, two days before he was due to appear before its board and explain why he didn’t tell federal and state regulators about the tax liens and the lawsuit detailed in the AJC story.
At the time of Gray’s resignation from that board, Reed said he hoped that Gray would soon no longer be an adviser to any of the city’s pension boards.
In earlier interviews with the AJC, Gray acknowledged that he was paying off the liens and the settlement, but he said he had been advised by compliance experts that he wasn’t required to disclose them.
In a Sept. 25 letter distributed to clients, Gray said he was “outraged by this attack on my character” and said he’d always been “forthright and honest” during his 33-year career.
“We take great efforts to always be in compliance and invest significant resources in doing so,” he wrote.
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