A Connecticut Comeuppance

Wall Street Journal ^ | July 6, 2004 | Editorial

[OESY]

One troubling political trend is the proliferation of state politicians who treat private companies as honey pots for their personal ambitions. Last week two of the worst practitioners -- Connecticut Treasurer Denise Nappier and Attorney General Richard Blumenthal -- got a welcome rebuke from a jury of their betters.

A six-person Connecticut jury ruled that New York financier Theodore Forstmann and his buyout firm, Forstmann Little & Co., owed the state nothing for having lost $125 million of its money investing in telecom companies. While the jury found them guilty of violating a couple of details of their investment contract with the state pension fund, the panel denied the state any compensation on grounds that it knew what it was getting into by investing in such high-risk ventures.

Mark down a victory for the proposition that investors are accountable for their own decisions. Only a bubblehead from the bubble era of the late 1990s, or perhaps a state pension official, could have thought that investing in a leveraged-buyout fund wasn't risky business.

...

Connecticut's politicians want to have it both ways: Get a share of the higher profits from riskier investments, but then blame the investment advisers when some of those risks go south. This is certainly easier than facing Connecticut retirees with the truth that the state treasurer had gambled on the technology venture market and lost.

Such blame-shifting is useful to Ms. Nappier and Mr. Blumenthal, who have ambitions for higher office. Ms. Nappier would not want a telecom fiasco on her resume if she runs for governor on a fiscal responsibility platform. So shout "fraud," throw up a lot of legal smoke, and hope that a jury of financial amateurs is fooled enough to go along with raiding someone else's deep pocket. After their defeat Mr. Blumenthal bellowed that he will scour the record for any opening to appeal -- a real vote of confidence in the jury system.

It used to be that the job of treasurer was a modest sinecure for someone who wanted to protect the state fisc. But as state pension-fund assets have soared, these former nobodies are now trying to leverage their dollars for their own political profit. Most notably, California Treasurer Phil Angelides....

Let's hope the private-equity markets have been paying attention. Had the Connecticut suit resulted in damages, it would have been open season for other state pension funds to sue to make up for their own bad investment decisions.

...

[OESY]

This news was hidden by the NY Times and others eager to drive Connecticut's Republican governor from office.

[Bonaventure]

Richard Blumenthal is perhaps the most aggressive state attorney general when it comes to pursuing companies for alleged securities fraud. Connecticut has acquired a serious reputation as a hawkish class-action plaintiff. (The Contract With America included a securities-law reform measure that made it easier for large institutional investors, such as state pension funds, to take control of securities fraud class actions.)