Unbridled Greed: Picking Detroit’s Pocket
Mayfield Gentry Real Estate Advisors, a relatively small money management firm, represents one of the most blatant cases of misconduct that I’ve seen over the decades. The firm’s executives were intertwined with the former Mayor of Detroit, Kwame Kilpatrick. Mr. Kilpatrick resigned from office in 2008 after being indicted on a laundry list of improprieties.
It turned out that Mayfield Gentry lavished the former-Mayor with all sorts of free travel and entertainment in exchange for the Mayor’s endorsement of a $117 million real estate investment by the City’s pension plan. Thanks to those gifts, Mayfield Gentry won a mandate from the pension. However, things began to unravel when the Mayor’s host of legal troubles drew the SEC’s attention, and they begin to look into Mayfield Gentry. In total, Mayfield Gentry spent about $125,000 on wooing the Mayor. The firm’s President, Chauncey Mayfield, pleaded guilty to engaging in “pay to play” and is awaiting sentencing.
While Mayfield Gentry’s gifts were extreme, “pay-to-play” is an ongoing problem in the world of pensions and endowments. In the Detroit case, there was nothing subtle about the transaction. The ex-Mayor demanded favors and the money management firm delivered in exchange for access to pension assets. In the non-criminal world of money management, the interplay between money managers and trustees or staff is much more subtle. The trustees don’t explicitly ask for anything; it is simply understood. The dollar amounts probably top out around a thousand dollars. Before you condemn public sector pension plans, be advised that university endowments, corporate pension plans, and family offices also play this game. Most money managers and trustees are simply not as blatant as Mayfield Gentry and ex-Mayor Kilpatrick. Trustees and staffers alike have come to expect free rounds of golf, theatre tickets, and the like. Pay-to play, however, isn’t the part of this story that is about unbridled greed.
In addition to winning a mandate from the City of Detroit’s pension plan, along with the commensurate fees, Mr. Mayfield made off with $3 million. He purchased a strip mall for his own account with the proceeds. And when his partners found out, they helped to conceal this sordid little fact from the pension trustees. According to the SEC, which just settled this matter with Mr. Mayfield, the firm made numerous presentations about its investment performance without ever mentioning that the returns were grossly overstated because over $3 million was missing. Only when the SEC initiated the pay-to-play inquiry did Mayfield Gentry let the trustees know about this little transgression.
Fortunately, the beleaguered pension plan got back the $3 million. True to form, the SEC allowed Mr. Mayfield to settle the charges without admitting or denying the allegations. Making off with client assets is a rare phenomenon in the world of money management. In fact, in most instances the manager does not have direct access to client assets, as they are in the custody of a bank. While there’s plenty of greed coursing through the money management industry, at Mayfield Gentry we had a case of unbridled greed.