Fund spent $9M in professional fees

The NMI Retirement Fund spent a little over $9 million in professional service fees from fiscal year 2008 through the first five months of fiscal year 2012, over $862,000 of which was for at least seven different outside legal counsels. This is based on a report that the Senate Committee on Executive Appointments and Government Investigations obtained from the Fund while reviewing the governor’s re-appointment of Sixto Igisomar to the Fund board.

Because the data is only up to February 2012, the legal fee for the Fund’s newly hired bankruptcy lawyer Jeremy B. Coffey is not included, said EAGI Committee chair Sen. Frank Cruz (R-Tinian).

Coffey’s initial rate for his service was $1,000 an hour but this was lowered to $475 an hour, still needing court approval.

Moreover, the legal fees do not include those paid to in-house counsels, Cruz said.

The Senate EAGI panel asked the Fund to provide its expenses for professional services, including legal service fees, back in March.

Cruz received the data, dated March 20, 2012, from then Fund acting administrator Esther S. Ada. A copy of that Fund letter to the Senate EAGI Committee, along with other sets of documents, was obtained by Saipan Tribune this week.

“But I’m not satisfied with the data they provided. I was asking for a detailed, itemized data, but they provided only general figures. I don’t care who they paid, but I wanted to know how many they paid, how much they paid and for what services,” Cruz told Saipan Tribune in an interview.

Data provided by the Fund to the Senate panel shows the total amount spent on each of the six types of professional service fees in fiscal year 2008, 2009, 2010, 2011 and the first five months of fiscal year 2012 from Oct. 1, 2011 to Feb. 29, 2012.

These professional services include actuarial service fees, audit and accounting fees, financial consultant fees, investment management fees, legal service fees, and PCT custodial fees.

For legal fees alone, the Fund spent over $862,631.70 during the period under review, based on Fund’s data.

Cruz, who was closely looking at legal service fees, requested from other sources a more detailed listing of Fund’s expenditures, including those paid on a monthly basis to outside legal counsels.

He was able to see, for example, that monthly invoices for legal service fees range from $5,300 to $24,920, but this is based only on specific records from January 2010 to February 2012. Most of the monthly billings are in the $9,000 to $15,000 range.

Among the reasons cited by the EAGI Committee to recommend rejecting Igisomar’s re-appointment were what Cruz described as the exorbitant legal fees and other professional service fees that the Fund has spent as well as its slow action to sue a businessman that provided it a defective software.

Cruz was referring to business Gary Sword, whom he said was sued by the Fund only this year when the Fund board already knew since 2010 that the software was defective.

The Senate held off acting on the EAGI Committee’s report recommending rejection of Igisomar. However, shortly before the 90-day period lapsed on Igisomar’s re-appointment, Gov. Benigno R. Fitial withdrew the nomination so he could re-appoint Igisomar.

When asked whether he would change his position on Igisomar’s confirmation if and when Fitial resubmitted his name to the Senate, Cruz said, “Not likely.”

Based on at least January 2010 to February 2012 data that Cruz gathered, the law firm of Camacho & Alepuyo, and later of Viola Alepuyo, the Fund board counsel, was paid over $325,000 in monthly legal fee/invoice.

The range of the monthly legal fee/invoice for the Camacho & Alepuyo law firm, and later to Viola Alepuyo, is from $7,155 to $23,540.

During the same period of January 2010 to February 2012, the Fund also paid for legal services provided by: Deborah E. Fisher, $5,300 in May 2010; Fisher Huesman LLC Trust Account, $15,000 in 2011; and the Law Office of Braddock Huesman, a total of over $46,000.

Former representative Diego Benavente, one of the directors of the Commonwealth Retirees Association, said the Fund spends too much on legal services but he recognizes there are lots of lawsuits that the pension agency has to deal with.

Cruz echoed this concern. He said the Fund could have used portions of that to pay actual benefits to retirees.

The Fund pays out $50 million to $60 million in annual benefits to retirees and their surviving spouses and other relatives. Cruz said there is one law firm that offers to charge the Fund only if and when it wins a lawsuit.

Esther S. Ada, then acting Fund administrator, told Cruz in a two-page letter that the Fund has consistently decreased its total expenditures in professional fees, with a few exceptions.

She said actuarial service fees increased significantly between 2008 and 2009 because the actuary, at the Fund’s request, provided additional services to determine the impact of pension reforms that were being contemplated to sustain the viability of the Fund, most of which were at the request of the Legislature pursuant to Public Law 15-70.

“In addition, legal service fees covered services from at least seven different outside legal counsels whom the Fund retained to handle an increase in lawsuits involving the Fund as well as the services of the administrative hearing officers tasked by the Fund to resolve a backlog of cases under administrative appeal,” Ada told Cruz.

In fiscal year 2008, total professional fees were over $2.5 million, $2.1 million of which was for combined financial consultant fees and investment management fees, and $121,470.19 for legal service fees.

Ada said investment management fees, which are paid as a percentage of assets under the management of the money managers, show a steady decline indicative of the decrease in the number of money managers as well as the Fund’s asset portfolio as the pension agency continues to withdraw funds to pay pension benefits and operational expenses to cover the shortfall in the remittance of employer contributions from the CNMI government.

Financial consultant fees for 2008 and 2009 were incorporated into the investment management fees and were not segregated out until 2010.

In 2009, total professional services went down a bit to over $2.2 million. Of this, $1.7 million was for financial consultant fees and investment management fees and $208,670.48 was for legal service fees.

The following fiscal year, professional fees also totaled over $2.2 million. Financial consultant fees were at $99,195.08, while investment management fees were over $1.57 million. Legal fees totaled $264,611.74.

In 2011, total professional service fees were over $1.988 million, of which $1.3 million was for investment management fees, $226,339 for financial consultant fees, and $191,469 for legal fees.

For the first five months of 2012, professional services fees totaled $143,149.92. Of this amount, legal service fees totaled $76,409.72; financial consultant fees, $33,629.03; and investment management fees, $12,539.59.