Former state treasurer Seale tied to contracts

Jeff German and Steve Kanigher

Sunday, Oct. 8, 2006 | 7:40 a.m.

An Atlanta management investment firm with close ties to former Nevada Treasurer Bob Seale over the past eight years has received competitive contracts to oversee a significant portion of the state's $3.5 billion investment portfolio, records show.

GIF Services LLC had been in operation for only a year in 1998 when Seale persuaded the Nevada Board of Finance to award the company - founded by his good friend, former Georgia Treasurer Steven McCoy - a contract to oversee the management of $100 million in long-term state investments.

At the time, Seale, who was preparing to leave office after two terms, was an unpaid director of the Government Investment Foundation Inc. - a nonprofit organization in Atlanta founded by McCoy to help educate state and local financial officers around the country on the art of investing public money.

At the Sept. 2, 1998, Board of Finance meeting, Seale disclosed his ties to McCoy's charitable foundation and told his fellow board members that GIF Services had prevailed over 31 other management firms in a competitive selection process conducted by the Nevada treasurer's office.

With a foot in the door, GIF Services gradually expanded its dealings with the treasurer's office under Seale's former top deputy and successor, Brian Krolicki, winning new contracts from the Board of Finance to help manage more of the state's investments.

This came as Seale, a former Nevada Republican Party chairman, took a job as a marketing consultant for GIF Services in 2001 and was elected to the state Assembly in 2004 while on McCoy's payroll.

It also occurred while McCoy and his associates were showering Krolicki with campaign contributions.

Since 1998, records show, Krolicki, a Republican now running for lieutenant governor, has received at least $50,000 in cash and in-kind political donations from McCoy and his associates.

Today, according to the treasurer's office, GIF Services helps the state oversee $621 million in investments.

About $305 million is money from the state's general fund, $38 million is from a separate prepaid college tuition program and the remaining $278 million consists of local government funds invested through the state-run NVEST program, which is designed to help smaller communities with their long-term investment strategies.

Ethics experts say the relationship between the treasurer's office and GIF Services appears to be fully disclosed and open to public scrutiny. And Gov. Kenny Guinn, a Republican who heads the Board of Finance, which has approved several GIF contracts, said he sees no conflicts of interest between the Atlanta company and the treasurer's office.

But the relationship sparked controversy this year when a top executive with a Henderson money managing firm complained about having to go through GIF when trying to provide advice to local communities with fewer than 100,000 residents.

In a March 28 letter to Guinn, Robert Kasner, first vice president of Mellon Private Trust Co., suggested that GIF Services, which he called "Seale's company," had been given a monopoly by the state to run the NVEST program.

That touched off a fiery response from Krolicki, who accused Kasner of distorting the facts about the management of the program.

The ill feelings, which also surfaced at a Board of Finance meeting, later subsided after Kasner's company decided not to do business with the local communities.

Democrats also see the relationship between GIF Services and the treasurer's office as being too cozy, and they are making a campaign issue out of it in the remaining weeks before the election.

Last week, during a televised debate, Bob Unger, the Democratic candidate for lieutenant governor, accused Krolicki of turning the treasurer's office into a home for "sweetheart deals for his best donors and buddies." He specifically named Seale as one of Krolicki's favorites.

But Krolicki strongly denied the Democrats' allegation that he follows a "pay to play" policy at his office.

(Unger has received $5,000 each in contributions from Greenspun Corp., owner Daniel Greenspun and his wife, Robin. The Greenspun Corp. owns the Las Vegas Sun. Two Greenspun-run companies also contributed a total of $2,500 to Unger. Another Greenspun company donated $1,500 to Krolicki.)

The relationship between GIF Services and the treasurer's office has caught the attention over the years of Democratic members of the Assembly's Ways and Means Committee, which deals with issues involving the treasurer's office.

"From what we found, they lived by the letter of the law," said former Assemblyman David Goldwater of Las Vegas. "But it just looks unseemly.

"There are a lot of different professionals who can do this same job for the state. You wonder why they wouldn't avoid the appearance of a conflict and go with somebody else."

Assemblywoman Chris Giunchigliani, D-Las Vegas, said that she heard plenty of rumors about the relationship, but no "inappropriate" conduct was ever documented.

"Appearances were there," said Giunchigliani, now a candidate for Clark County Commission. "But they covered all the bases."

The relationship has been vigorously defended by both Seale and Krolicki.

Both insisted that the contracts with GIF Services have been aboveboard and have produced financial returns for the state greater than national averages.

"The fact of the matter is that all the rules and regulations have been properly followed," Seale said, adding that he believed he had no conflict of interest when initially recommending GIF Services to the Board of Finance.

Krolicki agreed, saying: "We've done it exceedingly right, and we have gotten results that are outperforming the market in every category."

For example, in the quarter that ended June 30, a state analysis of the general funds revenue overseen by the company showed overall returns of 0.65 percent, better than the 0.56 percent national average for similar investments.

GIF Services has had to compete for the state's business with other investment firms every step of the way, Krolicki said.

Krolicki said that he leaves the evaluation of the firms to experts in his office.

Charging that his political detractors are overstating the extent of his campaign contributions from McCoy and his associates, he stressed that the donations are legal under Nevada law.

Moreover, many companies that do business with his office, Krolicki added, have not contributed to his campaigns.

"It is ridiculous to suggest that anything untoward has occurred with any of this," he said.

GIF Services performs what is known as a "manager of managers" service. It does not do the actual investing. That is done by separate companies known as "sub-advisers," whose performances are monitored by the manager.

Such arrangements are common nationwide and have been used for years to oversee large pension funds, including those on behalf of public employees in Los Angeles, Baltimore and Oregon, and teachers in St. Louis and Illinois.

The funds managed by GIF Services involve investments made by Wells Capital Management Inc. of San Francisco, Trusco Capital Management Inc. of Atlanta and Atlanta Capital Management Co. LLC. According to the publication Pensions & Investment, these companies rank 29th, 59th and 221st respectively among the nation's top investment firms.

The companies, Krolicki said, earn commissions from the investments and share those commissions with GIF.

The taxpayers, he added, are not charged directly for the service, which Krolicki said gives the state an "extra set of eyes." (The commissions, however, do come out of the public funds generated by the investments.)

Though Krolicki and Seale extoll the benefits of using GIF's services, they have been reluctant to disclose information about the company and its clients, citing confidentiality .

The company does not have a Web site, and a search of Internet databases turned up no information on funds that it manages outside Nevada.

Seale said the company has managed funds in other states, but he would not name them.

McCoy did not return repeated telephone calls for comment to his office in Atlanta, but faxed a statement to the Sun saying that the company does not speak to the news media about client matters.

In one page of company background McCoy provided, he said: "GIF currently provides investment advisory services to governmental accounts on approximately $900 million in investment assets, including state and local operating funds and trust funds."

If that is true, then Nevada, with its $621 million in assets overseen by GIF, would be by far the Atlanta firm's largest client.

McCoy also denied in his statement that GIF Services has worked out sweetheart deals with the state because of Seale's involvement.

"This is not true," McCoy wrote. "GIF first competed and was awarded an investment management contract with Nevada in 1998. Seale actually worked for a competitor and competed against GIF after leaving office in 1999

"Seale began marketing for us two years later in 2001 after leaving the competitor."

Records show Seale was working for GIF in 2003 when at least two GIF contracts were approved by the Board of Finance and later by the Nevada Board of Examiners, which also is headed by Guinn.

After Seale was elected to the Assembly in November 2004, McCoy wrote, his consulting contract was amended to bar him from using his legislative position to benefit GIF.

Seale also stopped dealing with the treasurer's office on behalf of the company, McCoy said.

Seale no longer works for GIF Services and is not seeking re-election .

He is, however, managing the campaign of Mark DeStefano, a Republican running to succeed Krolicki as state treasurer.

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