COLUMBIA — A bank accused of losing $200 million of retirees’ money through bad investments has agreed to put $25 million back in South Carolina’s accounts and give the state discounts on future fees under a new 10-year contract with the state, according to a copy of the settlement obtained Thursday.
The settlement negotiated through the state treasurer’s office awards the Bank of New York Mellon Corp. a new contract as the holding bank and securities investor of state assets – keeping roughly $40 billion with the bank, which has held the state contract since at least 2000.
The treasurer also promised to encourage the bank and an affiliate that manages hedge fund investments, HedgeMark, to win as much of the state’s investment business as possible for at least the next decade.
Provided that HedgeMark manages at least $3 billion in state assets, the treasurer’s office will get back an expected $2.6 million annually as a portion of the bank’s fees.
The state’s two attorneys get $9 million in the deal, which led to the cancellation of a two-week trial scheduled for July. A state court dismissed the case Monday.
The settlement also gives South Carolina a greater profit share on securities lending and breaks on fees.
Treasurer Curtis Loftis declined to comment on the specifics Thursday.
“Until all settlement transactions are completed, I cannot speak to the details,” he said.
The settlement specifies that the money will be released to South Carolina’s accounts and attorneys within 10 days of May 14, the deal’s effective date. The settlement barred discussion of the deal until it’s requested through the Freedom of Information Act, and the bank is notified. The AP submitted requests through the public records law Wednesday.
“It is comprehensive, equitable and beneficial to the state,” Curtis told colleagues on the Retirement System Investment Commission, reading from a prepared statement.
Commission Chairman Reynolds Williams tried to get Loftis to discuss the details in open session, but Loftis refused.
“Your opportunity here is to try to embarrass me a few days away from closing. I am embarrassed because I don’t like to be played here,” Loftis said before getting up and storming out the door. “This is nothing but an attack on me. I’m not going to speak about it anymore.”
The treasurer’s office sued the bank in January 2011, accusing it of investing in mortgage-backed securities made up of subprime mortgages and debt instruments in the now-bankrupt Lehman Brothers, violating the state’s contract, which allowed only for short-term, conservative investments.
The bank continues to deny the allegations.
“The bank is liable for the losses incurred, and my administration will continue to work with counsel to recover every penny due to the citizens of South Carolina,” Loftis said when the suit was filed.
The agreement calls for $20 million to be credited to the state Retirement System Investment Commission, which oversees public workers’ $27 billion pension portfolio, and $5 million to be credited to the treasurer’s office, whose responsibilities include writing the checks for state government and investing for college savings programs and the trust fund for retirees’ health insurance.
As treasurer, Loftis sits on the investment commission.
But the Republican treasurer, the board’s only elected member, has feuded with his fellow commissioners since taking office. He has publicly railed against the commission’s alternative investments — arrangements outside of cash, stocks and bonds — particularly in hedge funds, saying the fees are too high and the state’s overly invested.
The settlement specifies that the Bank of New York will meet with the investment commission to sell them on HedgeMark’s services. It also calls for the bank to provide $150,000 worth of training annually to employees of the treasurer’s office, retirement commission, and public benefits agency.
News about the settlement prompted the Senate, in its second week of budget debate, to kill Loftis’ request to add $1.8 million to his office’s budget for 2013-14.
“I’ve got some concerns about those attorney fees,” said Senate Finance Chairman Hugh Leatherman, R-Florence, asking his colleagues to vote “no.”
Of the $9 million being wired to the attorneys, $7 million goes to the firm of Mitch Willoughby, the attorney hired under Chellis, and $2 million goes to the attorney Loftis brought on board, Mike Montgomery.
Willoughby’s agreement with Montgomery gave Loftis’ long-time friend and fraternity brother 22.5 percent of attorneys’ fees awarded. Willoughby’s contingency contract was signed in June 2010 by Chellis.
Both Loftis and Attorney General Alan Wilson signed off on the deal last month.