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Retirement trustee at center of scandal

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Concord – The New Hampshire Retirement System Board of Trustees concluded its chairman, Edward Theobald of Portsmouth, failed to disclose an offer of free stock in a start-up company that wanted a $10 million investment from the pension fund.

Theobald also wrote a letter on state stationary to vendors of the retirement system, strongly urging they donate to a charity fundraiser golf tournament benefiting a fund for the families of fallen firefighters.

“I am asking you to select either the $2,500 or $5,000 donation level to demonstrate your support of this noble and well deserving cause,” Theobald wrote to Evaluation Associates, the Norwalk, Conn., firm that makes hundreds of thousands of dollars annually as the lead adviser to trustees on which investments to make.

“Thank you in advance, for your financial commitment and, as importantly, your participation as a member of our extended community.’’EA responded by sending in a $2,500 check to the Sept. 20 event at Stonebridge Country Club in Goffstown.

Last month, the trustees voted to expressly make such a charity solicitation by employees or trustees also a violation of its ethical code.

Gov. John Lynch has said he will not reappoint Theobald, a prominent Democrat and past political fundraiser, to the board Theobald has served on since 1997.

On Wednesday, three of five executive councilors publicly rallied to Lynch’s defense, sought and obtained a non-public meeting on Aug. 31 with the governor to learn of his reasoning.

“I am certainly, probably the number one fan for Ed Theobald,” began Councilor Ruth Griffin, a Portsmouth Republican.

“If what is going on over there is a little bit of infighting between two people or whether you feel he has done something wrong, I don’t know.”

Theobald admits he entertained investing in Hermes Technology LLC but declined after the system’s legal counsel advised such a “side by side’’ investment would be a blatant conflict of interest.

“I did not seek any special accommodation, stock or anything of that kind from Hermes,” Theobald wrote in a June letter asserting his innocence.

“I never solicited such a possibility and other than the board seat and a discussion of my investing in the company, I never had any discussions . . . of any such nature.”

Hermes is marketing radar-like equipment that can detect weaknesses in the deck structures of highway bridges.

NHRS trustees later learned the federal government pioneered the device and Hermes was trying to create a commercial market for it.

State Treasurer Michael Ablowich chairs the board’s audit committee that recommended trustees send a letter urging Lynch not to rename Theobald.

“We reviewed a significant amount of material and I think we made the most appropriate recommendation,” Ablowich said.

“We wanted to make sure the system hadn’t lost any money and other than the cost to review the Hermes proposal, we had not.”

The trustees voted last month, 9-1, to set the letter to Lynch aside to give Theobald more time to consult with his lawyer, Richard Molan, who has also denied there was any wrongdoing.

Trustees did vote, 6-4, that Theobald violated the code by failing to disclose the stock offer.

The system’s code of conduct clearly spells out punishment for such an offense.

“If a violator is a member of the board of trustees, then the board shall petition the governor and executive council for removing of such offending trustee by address pursuant to NH RSA 91:3,” the code states.

The retirement system manages net assets totaling $4.6 billion to cover the pension checks paid to 18,000 retired state, county and municipal workers along with city and town teachers, police officers and firefighters.

There are 51,000 public employees now contributing part of their weekly earnings towards future pensions.

Theobald is in the investment business and in an Aug. 1 letter to councilors he reported that 10 managers work underneath him at Maiden Lane Partners.

“Not once during this period did I introduce to the New Hampshire retirement system a manager I worked for or a company Maiden Lane Partners represented,’’ Theobald said.

Theobald denied knowing the code banned him from profiting personally from investments the system made.

The Telegraph reviewed more than 100 pages of public documents that became available after Legislative Budget Assistant Mike Buckley made a request for records under the Right-to-Know Law.

According to NHRS minutes, Theobald cast a deciding vote to keep the $10 million investment alive after a move in March to terminate all talks with Hermes.

The motion failed by a 6-6 vote. The chairman traditionally does not vote unless it is needed to settle a matter.

Theobald said an investment manager holding himself as a principal with Hermes, Joseph Scanlon, offered Theobald 2 percent of the company for $500,000.

When Theobald said he didn’t have that kind of money, Scanlon said he could get a seat on the board and free stock, Theobald explained.

“I immediately indicated to him that was impossible and that trustees are never placed on the board of advisory committees or any of the corporations in which they invest.’’

Before Theobald revealed any contacts he had about payment from Hermes, the trustees began to investigate after a May 24 letter from Scanlon’s primary employer, Ark Asset Management Co. Inc. of New York.

Ark informed NHRS that on May 24 it forced Scanlon to resign for holding himself out as representing Hermes without the knowledge of any other Ark officials.

In that letter, Ark Chairman Henry R. Breck first revealed the Theobald link.

“Our internal document review also indicates that it also was contemplated at some point in time by Hermes that Mr. Theobald would have an opportunity to purchase an equity interest in Hermes,’’ Breck wrote.

Ark is also a paid investment advisor to NHRS.

Theobald said he had rejected all compensation offers after Alan Cleveland, the system’s legal counsel, warned it would be improper.

He did not believe it necessary to tell trustees that Scanlon kept making these overtures.

After meeting company officials in New York, Theobald helped arrange the first presentation officials with Hermes made with the company. Some trustees said they believed the board informally had decided it would invest.

In March, Theobald’s vote gave Hermes officials another month to answer lingering questions about the company’s financial strength.

On April 12, the trustees voted to terminate all interest in the investment.

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