Massachusetts Attorney General Martha Coakley said Monday that she is widening her investigation of a failed investment at the MBTA pension fund, and she urged its board to adopt more stringent ethical standards or face legislation to overhaul its rules.
The stepped-up pressure from Coakley follows a Boston Globe report last week that the MBTA Retirement Fund was sold a $25 million investment in 2007 by its former executive director, Karl White, less than a year after he left to join a New York hedge fund.
The money is now gone, but the T retirement fund has not reported the loss to members or the public, even though its board has known about it since at least 2011.
Coakley said it is “outrageous’’ the Massachusetts Bay Transportation Authority’s retirement board has not applied the same ethical and conflict-of-interest standards and public disclosures that are in place at other pension operations.
“This is a clear warning signal of practices and procedures that are not held to the same standard as our other public pension funds,’’ Coakley said. “How many times do we have to learn this lesson?’’
Had standard ethics rules applied, White could not have done business with the authority where he used to work for at least a year, and possibly ever, under state rules. If the T retirement board does not voluntarily adopt tougher guidelines, Coakley will ask the Legislature to impose new rules, she said.
The hedge funds run by Fletcher Asset Management are now in bankruptcy, and federal authorities — including the FBI and the Securities and Exchange Commission — are investigating the company and its owner, Alphonse Fletcher Jr.
A spokesman for the $1.6 billion pension fund, Stephen Crawford, declined to comment specifically on Coakley’s call for greater transparency at the T. In a statement, he said: “We welcome the Attorney General’s assistance in recovering the Trust’s funds from Alphonse Fletcher and those that aided and abetted his scheme and willfully cooperate, as we have done to date, with any investigation into the investment.’’
Coakley said the hedge fund losses are a red flag that there may be other problems in the retirement board’s operations. While she would not elaborate on specifics of the investigation, she said that in cases where her staff identifies a “lack of a protocol,’’ the office will probe further to see “if it’s an indicator of a greater problem.’’
The MBTA pension fund does not hold public meetings or publish minutes of its sessions and is fighting a law the governor signed last summer to make its records public.
The Fletcher funds filed for federal bankruptcy protection in 2012, but there has been no disclosure of that loss to MBTA pensioners or taxpayers, nor is there mention of the troubled investment in the pension fund’s annual report. The trustee in the firm’s bankruptcy case attributed the failure to a fraud that has “the characteristics of a Ponzi scheme.” The MBTA fund has said it is cooperating in those probes.
The T’s retirement board is incorporated as a private trust, which effectively makes it exempt from public records law and oversight by the Massachusetts Ethics Commission. The state’s highest court upheld those privileges in 1993.
Since then, though, the raft of scandals from Wall Street, such as the Bernard Madoff scheme, has shown that investment funds need to be much more open, Coakley said.
“This needs to change,’’ she said. “We’re certainly a couple decades wiser.’’
The legislation to require the MBTA fund to open its books was sponsored by state Senator William Brownsberger, a Democrat from Belmont. He said subjecting the pension fund to public records law was only a first step in making its operation more transparent.
“There is no moral justification whatsoever for keeping the books of this entity and the records of this entity private,’’ Brownsberger said. “There should be further steps taken to open up the meetings of this agency and to subject them to ethics oversight.’’
Specifically, Brownsberger said, the MBTA board’s proceedings, compensation, contracts, and business dealings should be in the public record.
Crawford, the board’s spokesman, said the pension fund is challenging whether the new law violates its private status. “The courts have not yet considered or determined whether or not these private rights are abridged” by the measure, he said.
In addition to the need to keep workers’ retirements safe, Coakley said, the public has a strong interest in the health of the pension fund, given that taxpayers contributed nearly $1 billion to the T’s operations last year.
If the pension fund were ever to have difficulty paying its liabilities, “We believe that it is likely taxpayers would be on the hook to foot the bill,’’ she said.
Crawford disputed that. “The pension fund is fully capable of meeting its obligations to its retirees and beneficiaries,’’ he said. “The trust is solely responsible for meeting that responsibility — not the Commonwealth.’’
Beth Healy can be reached at Beth.Healy@globe.com.