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MBTA retirement fund sues auditor over $25m loss

The MBTA retirement fund is suing the national auditing firm Grant Thornton and two other service companies over its losses on a $25 million investment recommended to the fund by its former executive director.

The lawsuit, filed in Suffolk Superior Court, blames the pension fund’s loss in a Fletcher Asset Management hedge fund on firms it alleges should have identified that Fletcher was not investing the money as promised.

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The Fletcher hedge funds, operated by the New York-based firm, are bankrupt and under investigation by federal authorities for running a suspected Ponzi scheme. The MBTA pension fund has lost its entire $25 million investment in the Fletcher fund, as previously reported by the Globe.

The MBTA alleges in the complaint that Grant Thornton, New York-based auditor EisnerAmpner, and a San Francisco asset valuation firm, Quantal International Inc., failed to properly audit and value the holdings in the hedge fund.

Grant Thornton denied any wrongdoing in its work for the Fletcher fund. “We are confident that our work complied with all professional standards and we intend to vigorously defend ourselves,” the company said in a statement Friday.

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Neither of the other defendants was available for comment Friday.

The lawsuit does not name Fletcher Asset Management as a defendant. But T officials have not ruled out legal action against the investment firm.

The $1.6 billion MBTA pension fund was the sole investor in Fletcher’s Fixed Income Alpha fund. The investment was sold to the pension fund by its former executive director, Karl E. White, nine months after he left the helm of the retirement fund for a job at Fletcher.

White was not bound by ethics rules that normally bar state officials from pitching products to an agency where they formerly worked, because the T retirement fund is a private entity. A legal challenge to that status in 1993 was upheld by the state’s highest court. The attorney general is investigating the MBTA’s loss, and urging the pension fund’s board to adopt ethics and disclosure rules more in line with other pension funds for public employees. MBTA retirement officials declined to be interviewed since news of the Fletcher loss became public. On Friday, a spokesman said they would have no comment beyond the complaint.

The fund’s officials and lawyers have been working with the New York trustee in the bankruptcy case to try to recoup some of the Fletcher losses. The lawsuit is a part of that effort, as the fund seeks to tap for restitution the assets of firms that provided services to Fletcher. In the complaint filed last week, the MBTA said it was suing firms that “enabled an enormous fraud causing significant damage to the Retirement Fund, a defined benefit plan which provides a critical source of retirement income to certain of the Commonwealth’s transportation workers.”

The MBTA pension was the sole investor in the Alpha fund and the fund itself is a co-plaintiff in the lawsuit. White told the Globe in an earlier interview that he never checked to see if his firm was investing the assets in the complex way he had sold to the pension fund. White did not inform his former colleagues at the T when he left Fletcher in late 2008.

Beth Healy can be reached at beth.healy@globe.com.
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