In his first action as Pennsylvania treasurer, Joseph M. Torsella barred firms that invest treasury funds from using politically connected "finders" to land business with his department.
The move comes after the arrest last year of Chester County millionaire Richard Ireland on charges of seeking to bribe former Treasurer Rob McCord with $500,000 in campaign donations and a job offer in exchange for McCord's placing hundreds of millions of dollars in public funds with Ireland's clients for investing.
Federal financial regulators have essentially banned investment houses from giving campaign donations to elected officials as a way to crack down on “pay-to-play” corruption. To get around the restriction, some investment firms hire finders, also known as “third-party marketers,” to line up business with public agencies. The finders, as middlemen, are free to reward politicians with generous campaign donations.
In an interview Wednesday, Torsella, a Democrat, said he imposed the ban right after he was sworn into office Tuesday. Among his reasons: Payments to finders drive up costs to taxpayers, and studies show that firms that use finders typically perform more poorly than competitors who don’t.
“I just don’t believe there is a need,” he said.
Being a “finder” can be highly lucrative.
Ireland was a paid finder for two firms that were paid $62 million to invest treasury funds. Ireland 's deal with such firms called for fees to be split 50/50 with him, typically year after year, Treasury Department records show.
One key client, Valley Forge Asset Management, of King of Prussia, was the No. 1 recipient in Treasury Department fees collected between 2001 and 2015, about $45 million.
Ireland’s lawyers have said that he did not commit any crime and that he provided important services to the firms that hired him.
In July, a federal grand jury indicted Ireland, 79, on charges of orchestrating a “seven-year-long bribery scheme” to influence McCord to give work to Ireland’s clients.
The indictment does not allege that McCord took any actions in response to the contributions or offer.
McCord pleaded guilty to attempted extortion in a different case, admitting that he unlawfully solicited campaign contributions. After prosecutors confronted him with evidence, but before his plea, McCord wore a hidden recorder and secretly taped Ireland, according to federal prosecutors. He is expected to testify against his friend Ireland and is awaiting sentencing.
The same federal prosecutors have also brought a case against another former state treasurer, Barbara Hafer. They said she pocketed $675,000 in fees from Ireland after leaving her position but lied about that to the FBI.
Ireland and Hafer were charged in separate corruption indictments on the same day in July. Ireland is scheduled to go on trial in March, Hafer in April.
Hafer was treasurer from 1998 to 2004, elected as a Republican. McCord, a Democrat, was elected treasurer in 2009 and resigned in 2015 because of the federal investigation.
Although Torsella’s ban affects only his agency, the SEC will impose a nationwide reform in October that will effectively discourage all such firms in the United States from making campaign gifts.
Under the new rule, investment firms that win public contracts would have to give up their fees if regulators discovered that the firms used finders who gave campaign money to officials awarding the work.
In another sign of the persistence of pay-to-play in Pennsylvania, the SEC on Tuesday said an Allegheny County firm agreed to pay $45,000 to resolve accusations that its president made two improper $500 campaign contributions in 2014, one to McCord and the other to then-Gov. Tom Corbett.
The firm, Adams Capital Management, was overseeing $30 million in investments for the giant Pennsylvania State Employees’ Retirement System (SERS).
As treasurer, McCord sat on the SERS board; as governor, Corbett appointed six members.