A Canadian private equity firm accused in a lawsuit of mishandling investments by Missouri’s largest public pension hired a lobbyist to influence key legislators and put pressure on the pension outside of court proceedings, a top pension official claimed in testimony last week.
Catalyst Capital Group hired Missouri lobbyist Richard McIntosh after the Missouri State Employees’ Retirement System sued the firm in October. Ronda Stegmann, MOSERS executive director, testified in a court hearing that McIntosh then tried to set up a meeting with Stegmann, two legislators and Catalyst executives.
Companies routinely hire lobbyists to influence lawmakers on legislation and policies they consider. Less common is the involvement of a lobbyist around ongoing litigation.
Stegmann said in the court hearing that Rep. John Wiemann, House Speaker pro tem and a member of the pension’s board of trustees, called her in late October.
Wiemann, R-O'Fallon, told her he had received a call from McIntosh asking about the lawsuit. The next day, McIntosh called again to invite Wiemann to attend a meeting in early November in the office of Sen. Bob Onder, the chairman of the Senate Health and Pensions Committee, and executives of Catalyst Capital Group.
Stegmann testified that she, too, received a call from Onder’s office, asking her to attend the same meeting.
Those phone calls came days after MOSERS sued Catalyst for steering investments into a troubled lending business, marking a rare step for the $8 billion pension that pays benefits to more than 51,000 retirees from Missouri state government.
Stegmann and Wiemann both declined to attend the meeting, citing the existence of the lawsuit. Typically parties involved in litigation do not speak with one another outside of court proceedings, except through their attorneys of record.
“I don’t want to say what he did was appropriate and I don’t want to say what he did was inappropriate,” Wiemann said. “What he did when he called me was not illegal. He certainly can call me. When I told him I couldn’t talk about it, that was the end of the conversation.”
While the meeting never occurred, Onder in December wrote a letter to Stegmann, quizzing her about MOSERS’ legal strategy and asking to see the itemized legal invoices it was sending to the law firm representing the pension. Onder said Catalyst had also offered to let him review a sealed document filed in the lawsuit that represented the private equity firm’s account of the issues in the case, and requested MOSERS’ permission for Onder to see it.
Stegmann testified that she was not keen on letting Onder see the itemized legal bills because she said someone could get a sense of MOSERS’ legal strategy. She replied to Onder that she would agree to Catalyst’s offer to view the sealed document only if MOSERS could brief Onder on its side of the case.
Stegmann said the lobbying put her in an “impossible position.” She said she would ordinarily meet with Onder, whose position on the Senate pension committee gives him influence over MOSERS. The pension also tries to maintain close ties with lawmakers because it relies on funding from the Missouri General Assembly — more than $32 million in 2020 alone — to fully fund the pension.
But the lawsuit prevented that, she said.
“It troubled me that he (Onder) was getting this information and there was pressure being put on us because we like to operate in a method of transparency and communication with Missouri General Assembly members,” Stegmann testified. “And this put us in an impossible position to do that.”
Onder, a Lake Saint Louis Republican, did not respond to a message left with an aide seeking an interview.
McIntosh did not respond to an email with questions about his lobbying activities.
McIntosh, a prominent lobbyist in the halls of the Missouri Capitol, last year pushed lawmakers to make changes to how state universities handle violations of Title IX, a federal law barring gender discrimination and establishing how universities police allegations of sexual violence. Critics of the proposed changes said they would shift power in favor of the accused and make victims more reluctant to come forward.
The Star reported that McIntosh’s son had been expelled from Washington University in St. Louis as a result of the school’s Title IX process. One of the proposed changes that McIntosh pushed for would allow students to appeal Title IX sanctions to the Missouri Administrative Hearing Commission, where McIntosh’s wife is the presiding commissioner.
Catalyst said it didn’t hire McIntosh to interfere with litigation, but rather to discuss what it said was troubling decisions that MOSERS appeared ready to take.
Rocco DiPucchio, Catalyst’s managing director, testified last week that he was alarmed to learn that MOSERS had just $4 million of free cash available at one point last year. He said MOSERS had $40 million in outstanding commitments to Catalyst.
DiPucchio also said that MOSERS last year considered not meeting a capital call, which is when an investment firm can demand funding that an investor had previously committed to making. Missing a capital call can result in a default, which could have hurt MOSERS’ credit rating and reputation in private equity markets.
MOSERS ended up making a $15 million capital call in November.
“We felt very strongly that the staff at MOSERS had not fully taken into account the impact that the action was going to have on plan members,” DiPucchio testified.
Larry Friedman, a Thompson Coburn attorney representing MOSERS, said at the hearing that Catalyst has “engaged in a pattern of misconduct” and that the pension concluded that it cannot trust Catalyst with its investments.
Friedman referred to information about alleged Catalyst attempts to influence litigation elsewhere, outside the courtroom.
Catalyst, according to published reports, was tied to an unsuccessful scheme by Israeli intelligence firm Black Cube to have its operatives covertly bait a Canadian judge into making anti-Semitic remarks. That judge had presided over a long-running lawsuit involving another Canadian asset manager and the scheme was said to have been an effort to show that the judge was biased against Catalyst, whose founder Newton Glassman is Jewish.
Black Cube is the firm hired by disgraced film mogul Harvey Weinstein to undermine actresses who came forward with allegations that he sexually preyed upon them.
Catalyst would not answer questions by The Star about Black Cube or the MOSERS litigation. Catalyst’s attorney, Chuck Hatfield, objected to the Black Cube references by Friedman, calling the discussion “patently unfair to us.”
Catalyst’s troubles in Canada surfaced publicly in 2016 and 2017. MOSERS declined to answer questions from The Star, citing the ongoing lawsuit, about whether it monitored its investment advisers like Catalyst, and why the controversies it pointed out in its lawsuit didn’t prompt MOSERS to act sooner.
MOSERS did not answer most other questions about its financial condition.
Stegmann in her testimony acknowledged that MOSERS could not have covered a capital call on a cash basis when it had $4 million in cash, although she said the pension could have used other liquid investments to cover a capital call.
Catalyst’s DiPucchio said that “raises a very significant concern in my mind.”
“It means fundamentally that you have to liquidate other positions to fund commitments,” he said.
MOSERS said that at the time it had $4 million in cash, it also had investments in cash equivalents, custodial bank cash and currency worth more than $2 billion.
“I have not had any concern at this point in time that MOSERS would be unable to meet its financial obligations, period,” said Wiemann, the House representative on MOSERS’ board of trustees.
He allowed that MOSERS faces some difficulties that also face other state pension systems.
MOSERS has been through three different chief investment officers since 2015. Its assumed rate of return on investments has declined. In fiscal year 2020, that rate was 6.95%, according to its annual financial report, down from 7.65% in 2016.
“Every time you lower that assumed rate, that makes the obligation for the state of Missouri go up,” Wiemann said. “So the state has had to put more money into the pot.”