Attorney General Martha Coakley is launching an investigation into the suspected $25 million investment fraud involving MBTA pension funds, a spokesman for her office said Friday.
“We’re actively reviewing this to see if any state laws are being violated,’’ Coakley’s spokesman, Corey Welford, said. In particular, her staff will look at representations made to the pension board by the hedge fund firm Fletcher Asset Management, and whether they were truthful.
The Globe reported Friday that the $1.6 billion MBTA pension fund’s former chief, Karl E. White, persuaded his old colleagues to invest $25 million with Fletcher in 2007. White made the investment pitch just nine months after leaving the pension fund to join the New York firm.
The Fletcher funds are now bankrupt and under investigation by the FBI and federal securities regulators.
White told the Globe he was not the hands-on manager of the money, although his title was chief investment officer. He said he had no knowledge of any improper activity at the firm owned by Alphonse Fletcher Jr., widely known as Buddy.
No charges have been filed in the case, but a bankruptcy trustee has likened the Fletcher funds to a Ponzi scheme. In court documents, the trustee alleged that Buddy Fletcher spent the money not on complex stock and bond investments, as promised, but on such things as his own legal expenses and a movie his brother was directing.
Fletcher, in a court affidavit, denies wrongdoing. White also denied wrongdoing in a Globe interview.
A pension fund spokesman, Stephen Crawford, said of the Coakley probe, “We welcome any and all investigations into Alphonse Fletcher’s fraud. We have and will continue to cooperate with authorities.’’
The current head of the MBTA Retirement Fund, Michael Mulhern, declined to be interviewed Friday. Directors of the fund contacted Friday did not respond.
Other senior state officials reacted with dismay Friday to revelations about the investment. The loss had not been publicly disclosed by the retirement fund, though it had been aware of Fletcher’s problems since at least 2011.
Governor Deval Patrick called the matter “troubling.” While the pension fund is a private trust — and not bound by the normal rules of public pensions — Patrick signed legislation last summer requiring the MBTA fund to make its records public.
But the pension fund continues to guard its information closely, relying on a 1993 decision by the state’s highest court that found it was not subject to the Massachusetts conflict of interest law or public records law. As a result, the retirement portfolio is a rare financial entity — a private trust managing money for employees of a quasi-public authority.
The pension fund covers roughly 12,000 active and retired MBTA employees.
Asked why the pension fund doesn’t hold public meetings or more readily make records available, Crawford said in a statement: “The Fund is a private trust with duties to its members and beneficiaries. It has standards of disclosure consistent with that responsibility.’’ Falling victim to an alleged fraud, he said, “does not change this fact.’’
But state Treasurer Steve Grossman, chairman of the $52 billion pension fund for state workers, said the MBTA, or any other retirement fund for public employees, should adhere to a higher standard.
“You’ve got to fully disclose, and let the investment committee know, let the board know, and the public — and it must be done as quickly as possible,’’ Grossman said. He and Coakley are both running for governor.
The MBTA pension fund’s 2007 annual report noted the Fletcher investment but did not disclose that it had a prior relationship with White. The fund did not disclose in 2011 that it was unable to withdraw money from Fletcher. It also did not report that the Fletcher fund filed for bankruptcy protection in 2012.
Because of the pension fund’s private trust status, White was not bound by the standard ethics rules that prohibit a former state employee from selling products to his prior agency for at least a year. Grossman said the MBTA should follow the same rules as other public agencies and pension funds.
“Everybody should accept those rules as the minimal standard of behavior,’’ Grossman said. “That is simply common sense.’’