UpFront | Published in July 2012

Betting the House

Employees sue Oregon pension over risky real estate and bank loan investments

By PLANSPONSOR staff | July 2012
Page 1 of 2 View Full Article
Illustration by Sam D'Orazio

Officials, staff and citizen board members responsible for Oregon’s state pension plan have been accused of mismanagement, and the plan’s fund manager of choice has been sued for fraud. The lawsuit, filed in April by two representatives of the Oregon Public Employees Retirement Funds (OPERF), revolves around the state’s dealings with private equity firm Lone Star Funds and, notably, a 2008 decision to invest in two of the firm’s new funds, despite Lone Star’s involvement in a financial scandal.

According to the lawsuit, as reported in The Oregonian, the state forged ahead with the investment without properly vetting Lone Star, and Lone Star withheld information that could have forestalled the transaction.

“The overarching breach of duty is the investment in risky, subprime mortgage­ debt,” says Jason Siebert, the Salem, Oregon, lawyer who filed the suit.

In January 2008, on the eve of the real estate collapse, Lone Star Chairman John Grayken met with the Oregon Investment Council (OIC) to pitch the new funds. These, like others the state had purchased during its profitable, 13-year relationship with Lone Star, would buy out distressed real estate and bank loans.   

Grayken had just testified  in defense of Lone Star and its chief executive in South Korea, Paul Yoo, accused of manipulating stock in a unit of Korea Exchange Bank before purchasing it in 2003. When an OIC member broached the allegations, Grayken “dismissed them as political issues that were largely resolved,” wrote The Oregonian. According to the paper, the state, too, had an interest in the bank through existing Lone Star investments.