The deputy to North Dakota Treasurer Kelly Schmidt on Tuesday addressed in more detail the dramatic allegations from the Democrat challenging her in next month's election.
Lawrence Hopkins, the deputy treasurer who came into the office with Schmidt almost four years ago, said challenger Mitch Vance simply was reading financial reports wrong and/or misconstruing them.
Vance and a volunteer aide, Tom Magin, held news conferences Monday in Grand Forks and Fargo alleging Schmidt had misreported the performance and status of monies in the Veterans Postwar Trust Fund that Schmidt oversees.
Vance said Schmidt's decision to move some of the money out of state-managed accounts to the private Edward Jones firm was a bad one and put the trust money at too much risk. He also said Schmidt seemed to be covering up the trust fund's performance.
He alleged that an end-of-September report from Edward Jones on the trust fund accounts indicates that a year ago there was a discrepancy between how much Edward Jones said was invested with the firm and what Schmidt reported to the Administrative Committee on Veterans Affairs, which receives all grants from the veterans trust fund.
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While the "year-ago" figures from Edward Jones tally as much as $3.7 million, Schmidt reported a year ago to ACOVA there was a little more than $4 million in the Edward Jones accounts, Vance and Magin said. It seemed to be part of a pattern of Schmidt overstating the performance of the trust fund money invested with Edward Jones, Vance said.
But Hopkins said Tuesday that Vance's mistake was relying on this year's report from Edward Jones to reconstruct what year-ago totals were, using a year-old line item on the reports of 12 accounts currently held in a portfolio with the firm.
Because Schmidt's office closed one account and opened three other accounts with Edward Jones the past year as part of the normal reshuffling of the portfolio, this year's September report from Edward Jones has an account list that differs from a year ago and has the totals itemized differently, Hopkins said. But the actual 2007 report from Edward Jones shows the correct totals, he said.
Hopkins provided the Herald a copy of an account report from the end of September 2007, which shows $310,562 in an account that was closed during the past year and indicates that Edward Jones itself reported a total of $4.04 million in the trust fund accounts with the firm a year ago. During the past year, the $310,562 was distributed to other accounts still with Edward Jones, Hopkins said. And the amount accounts for the discrepancy Vance claimed to find.
"His biggest mistake he made here was that instead of getting the 2007 statement balances, he just made the assumption he could get the 2007 balance off the 2008 report," Hopkins said of Vance. Neither Vance nor his aides asked for help reading the statements, and they have declined to pay the fees required to make copies of some documents they requested, said Hopkins, who is a certified public accountant. Some of Vance's complaints stem from Hopkins changing the way the treasurer's office reports on the trust fund, Hopkins said. It was not any attempt to juggle numbers or cover things up but simply to report the trust funds liabilities and assets in a more accurate fashion, Hopkins said.
Told of Hopkins' explanation for the $310,000, Vance said Tuesday he wanted to see the documents and blamed Schmidt and Hopkins for failing to provide him with the information he needed and wanted, saying Schmidt gave him only "piecemeal" information.
Vance said whatever the case on the $310,000, his larger point is that it is too risky to invest the trust fund money with Edward Jones, and it should all be left in the hands of the State Investment Board.
Vance said he would not speculate on why ACOVA itself has not voiced concern over Schmidt's oversight of the trust fund. But he did speculate that Schmidt was practicing cronyism by sending business, in the form of state trust fund money, to Edward Jones brokers.
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Schmidt rejects that, saying Edward Jones is the top-rated brokerage firm in the nation, and that her handling of the trust fund has been more conservative than similar trust funds are handled in nearby states and that the veterans trust fund has performed about as well as other trust funds in North Dakota.
On Tuesday, state investment director Steve Cochrane told a legislative committee that pension funds for the state's teachers and state government workers have lost 15 percent to 19 percent of their value so far this year, less than the general market drop.
Cochrane said both funds have invested more than 60 percent in the stock market, and neither is having trouble paying out benefits, The Associated Press reported.
Schmidt said that is similar to the veterans trust fund split between the stock market and more secure investments, and its performance.
According to Hopkins, from Jan. 1 to Oct. 14 this year, the total veterans trust fund is down 18 percent, while the stock market in general, measured by the Standard & Poor 500 index, is down 35 percent during the same period.
According to news accounts, the S&P 500 is down 35 percent for the year, one of the worst 10-month stock drops in history.
Schmidt said Monday that the 4 percent annual payout from the trust fund to various veteran grants is not threatened by the losses in investments so far this year.
Other measures
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Here are other measures Hopkins provided of the veterans trust fund's performance that illustrate the ups and downs of investments that he said have to be evaluated "over the long haul":
At the end of September 2007, the veterans trust fund had $4.04 million invested with Edward Jones; by the end of September 2008, that amount was down $686,000, to $3.36 million, a loss of nearly 17 percent. But the $686,000 included $148,000 paid out in grants to veterans, he said. So, the actual market loss of the Edward Jones-managed accounts in the 12 months ending Sept. 28 this year was 13.3 percent, he said.
Things went better in 2007.
In the fiscal year ending June 30, 2007, the veterans trust fund money invested in Edward Jones was up 13 percent for the year, and the total veterans trust fund, including safer, lower-returning investments such as CDs, was up 10.7 percent.
In the year ending Dec. 31, 2007, the veterans trust fund money invested in Edward Jones was up 4.5 percent, while the entire trust fund was up 3.72 percent, indicating the markets starting to go south a year ago, Hopkins said.
Those same numbers for the year ending Dec. 31, 2006, were gains of 10.6 percent and 9.2 percent, respectively, Hopkins said.
Reach Lee at (701) 780-1237; (800) 477-6572, ext. 237; or e-mail slee@gfherald.com .
