A California man whom federal regulators call “the biggest winner” in a scheme to defraud the Omaha Public Schools pension fund now faces charges in the case.
The U.S. Securities and Exchange Commission says Jason Sugarman of Los Angeles provided the funding for the scheme, in which prosecutors say investment advisory firms were purchased for the sole purpose of looting client funds. Just days after Sugarman and his co-conspirators acquired a firm that had long advised OPS on the district’s pension fund, they stole $16.2 million through the purchase of bogus bonds.
The fraud contributed to the troubles of the Omaha School Employees’ Retirement System, or OSERS, whose $800 million shortfall is forcing OPS to make tens of millions in annual payments to bring the fund back to solvency. The World-Herald detailed the pension’s problems in a series called “How to wreck a pension fund.”
Prosecutors allege that Sugarman personally received $9 million out of the scheme, in which a total of $43 million was stolen from OPS and other investment clients.
“These charges reflect that orchestrating a scheme from behind the scenes does not insulate someone from liability,” Sanjay Wadhwa of the SEC’s New York office said Wednesday in announcing the charges. “Sugarman played a crucial role in obtaining control of advisory client funds so they could siphon off those funds for their own personal benefit.”
Sugarman is the most high-profile of those charged in the scheme. Sugarman’s network of business interests includes being one of the co-owners of Los Angeles FC, a Major League Soccer team. Other co-owners of the team, which plays in the same league as Sporting Kansas City, include former NBA star Magic Johnson, actor Will Ferrell and former women’s soccer star Mia Hamm.
The civil action filed Wednesday by the SEC charges Sugarman with multiple counts of securities fraud and seeks to have him “disgorge all ill-gotten gains.”
It’s possible that Sugarman could ultimately face criminal charges, too. Jason Galanis, labeled by prosecutors as Sugarman’s prime co-conspirator, has long since pleaded guilty to criminal charges and been sent to prison. A half-dozen others also have faced charges.
The World-Herald investigation revealed mismanagement and bad investment decisions at OSERS that turned one of the nation’s best-performing public pension funds into one of the worst. It also revealed cozy relationships between OSERS leaders and the firms they did business with and potential conflicts of interest related to the fund’s primary adviser, Connecticut-based Atlantic Asset Management.
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Atlantic convinced the OSERS trustees, largely made up of school district personnel, to invest more than half the fund’s $1.2 billion in assets in funds with business ties to Atlantic.
In April 2015, Atlantic founder Ron Sellers, who had advised OSERS for more than two decades, sold his firm. Prosecutors allege that the woman who acquired Atlantic was actually a front for Sugarman and Galanis.
Prosecutors describe Galanis as the “brains” behind the scheme and Sugarman the “brawn,” his clout coming from his wide business dealings and connections. Charging documents say that through a company he controlled, Sugarman paid more than $6 million in upfront money to buy Atlantic.
After the conspirators looked over Atlantic client accounts, they came to focus on the Global Yield Opportunity Fund, a $126 million bond fund run by Atlantic in which OSERS was the sole investor.
Sugarman then played a role in convincing a longtime Atlantic employee to give up control and oversight of the global yield fund. As part of that effort, Sugarman arranged to fly the employee to California for either a Golden State Warriors basketball game or a Los Angeles Dodgers baseball game, teams that Sugarman’s in-laws had ownership interest in. The charging document does not name the Atlantic employee.
Four days after the April 16 purchase of fake bonds with OSERS funds, $236,000 was personally wired to Sugarman and his wife. In the end, the SEC says Sugarman used bond proceeds to acquire voting control of several corporate assets from which he “siphoned off almost $9 million for his direct and personal benefit.”