Former Federal Pensions Chief Faces Criminal Probe

A federal watchdog agency says ex-PBGC boss Charles Millard got job-hunting help from a Goldman Sachs executive after awarding the firm work

By Theo Francis and Nanette Byrnes

The former head of the federal pension insurer inappropriately interfered in a contracting process that ultimately led to the hiring of Goldman Sachs (GS), JPMorgan Chase (JPM), and Blackrock to manage billions of dollars in assets and earn $100 million or more in fees, a federal watchdog concludes in a draft report distributed on May 14. BusinessWeek has learned that a criminal investigation into some of the allegations raised in the report has been requested by a group of senators and will begin shortly.

The report calls into question the process used to award contracts for managing some $2.5 billion in assets at Pension Benefit Guaranty Corp. The report's author, PBGC Inspector General Rebecca Anne Batts, who will also handle the criminal probe, recommends that the Cabinet secretaries who oversee the agency consider whether the contracts should be revoked. The PBGC's acting director said the agency would decide whether to revoke the contracts.

Among other things, the report says Charles E.F. Millard, who stepped down on Jan. 20, improperly contacted some of the firms potentially bidding on the contracts and later sought and received job-hunting help from an unnamed executive of Goldman Sachs after the company had been awarded a contract to manage up to $700 million. The report also says Millard was warned not to engage in much or all of the activity it calls into question. The inspector general's inquiry was already under way before Millard's departure. Millard said earlier this month that he has been doing some consulting work while exploring different job opportunities.

All of this comes at a challenging time for the PBGC, which could become the steward of one of the large pension plans at bankrupt or struggling companies in the auto industry and elsewhere. Now, more scrutiny is sure to come. Representative George Miller (D-Calif.), chairman of the House Labor Committee, which released the draft report, announced that the committee will launch an investigation of its own, calling the questions over Millard's conduct "very serious." Herb Kohl (D-Wis.), chairman of the U.S. Senate's Special Committee on Aging, also announced a hearing, to be held on May 20, looking into the allegations and into broader concerns about the PBGC. Senator Charles Grassley (R-Iowa) said in a statement that he and three fellow senators—Edward M. Kennedy (D-Mass.), Max Baucus (D-Mont.), and Michael Enzi (R-Wyo.)—also support further investigation. A spokeswoman for Kohl's office said Millard had received a subpoena to appear at the hearing.

In a brief e-mailed statement, Millard's attorney, Stanley Brand, said Millard's efforts to improve the PBGC's financial health were "carried out in a transparent and ethical manner."

The report says it didn't find evidence of criminal activity by bidders for the contracts, though the scope of the inquiry so far has remained internal. Spokeswomen for Goldman, JPMorgan, and Blackrock declined to comment.

A controversial switch from bonds to riskier assets

The PBGC's board—Labor Secretary Hilda Solis, Treasury Secretary Timothy Geithner, and Commerce Secretary Gary Locke—has asked the agency's interim director to determine whether the contracts in question should be reevaluated.

The PBGC insures defined-benefit pension plans—traditional pensions that pay retirees a set monthly amount for life—and as of Sept. 30 managed nearly $50 billion in assets for plans that have been abandoned by the companies that originally sponsored them, usually after bankruptcy or insolvency.

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