Saturday, October 19, 2013
Remembering the San Diego Union-Tribune expose of Dan Puplava
Current SDCOE board members Mark Anderson, Susan Hartley, Lyn Neylong, Gregg Robinson and Sharon Jones still don't require that Diane Crosier, executive director of SDCOE's Risk Management Department, report the gifts she receives.
Remember this story? Here's how the San Diego County Office of Education's Dan Puplava scandal started four-and-a-half years ago. SDCOE Superintendent Randolph Ward and the SDCOE board allowed Diane Crosier and Dan Puplava to silence whistle-blowers and anyone else in their way.
“He's getting paid a salary by the taxpayers to manage the registered representatives, not to be a registered representative..."
Benefits manager’s work questioned
County employee also acted as a broker
By Jeff McDonald
San Diego Union-Tribune
March 17, 2009
A San Diego County Office of Education employee tasked with managing a retirement program for thousands of teachers and administrators supplemented his salary for years with commissions on outside investments he sold to those same clients.
Daniel Puplava makes $100,000 to $108,000 a year as the deferred compensation manager for a consortium that serves public educators in three counties. At the same time, Puplava has been allowed to pursue those clients for his private broker business.
In 2006, Puplava collected at least $355,000 in commissions as a broker for AIG Financial Advisors Inc., according to documents obtained by The San Diego Union-Tribune. He was named to the 2008 Achiever's Council, an honor reserved for agents of AIG Financial Advisors whose commissions and fees exceed $250,000 a year.
His attorney said Puplava shared that money with other brokers.
[Maura Larkins comment in 2013: Diane Crosier and Dan Puplava never produced any evidence that Puplava "shared that money with other brokers." Their lawsuits seem to have been intended to intimidate their critics into settlement rather than to have their day in court to prove their innocence.]
Officials at the county schools office said they knew about Puplava's broker business and saw no conflict of interest because he has done the work on his own time.
“It's not unheard of for public employees to have a business on the side,” spokesman James Esterbrooks said.
The arrangement does not appear to violate federal securities laws, but it tests the limits of the state education code and has become one of the main sticking points in litigation involving the office.
Puplava's work as a broker also appears to have been done at county offices. Client statements obtained by the Union-Tribune list Puplava's phone number at the county schools office as his primary contact.
“It certainly strikes me as an apparent conflict of interest,” said Ronald F. Duska, director of the Mitchell Center for Ethical Leadership at The American College in Bryn Mawr, Pa. “It just sets up incredible temptations for the guy who's supposed to be acting as a manager.”
Puplava, who is 47 and lives in Escondido, declined to be interviewed. His attorney, Randall Winet, responded to questions with a March 6 letter to the newspaper stating that Puplava has divested himself of his personal clients and received only a portion of the commissions cited in documents.
“The funds from financial services companies were paid directly to him, which he then was required to distribute to a number of brokers working for him,” the letter says.
Winet also said Puplava had “a significant, thriving practice prior to ever joining the County Office of Education.”
Puplava is a registered broker for SagePoint Financial Inc. in Phoenix, which until recently was called AIG Financial Advisors.
His full-time job is to manage the deferred compensation retirement program for the Fringe Benefits Consortium, which provides access to health insurance, annuities and other services for school employees across San Diego, Riverside and Imperial counties.
The consortium was created in 1982 to help school employees negotiate better deals on health insurance by pooling resources.
Twelve districts representing 2,500 or so teachers initially joined the self-insurance partnership, but the client roster grew to 72,000 as the consortium attracted more districts and expanded its services.
When the Office of Education hired Puplava in 1997, he was permitted to keep his “book of business,” or private clients, county schools officials said.
Puplava also was allowed to grow his client base by soliciting teachers he met through his county job.
Four years after his hiring, the county schools office was among the first agencies in the country to organize an umbrella retirement program for teachers, who as public employees receive government pensions but often supplement those benefits by setting up individual investment accounts.
The idea was to give teachers the opportunity to buy investment products without paying the high fees and commissions normally associated with individual transactions.
Puplava was put in charge of the deferred compensation program. He contracted with outside financial advisers to promote the services, and together they hosted hundreds of informational seminars outlining the various products and services.
About 6,000 teachers and administrators have bought supplemental investment products offered through the deferred compensation program.
Consortium director Diane Crosier said that after a new superintendent was hired in 2006, a decision was made to allow Puplava to keep existing clients but restrict him from accepting new teachers and educators as customers. But by then, even incoming Superintendent Randolph Ward had bought an annuity from Puplava.
[Maura Larkins comment: Did your employee give you a good deal, Randy?]
Running an outside business is legal for full-time county Office of Education employees. But according to the California Department of Justice, a deferred compensation program manager is supposed to be a neutral party – not someone who profits from marketing financial products.
“The statute prohibits school employees from acting as sales agents for 403(b) vendors in return for commissions,” according to an August opinion from the Attorney General's Office analyzing the state's education code.
Section 403(b) of the Internal Revenue Service doe allows public and nonprofit employees to pay into tax-deferred supplemental accounts to boost their retirement nest eggs, much like 401(k) programs in the private sector. Former employees and independent advisers say the U.S. Securities and Exchange Commission investigated Puplava's dealings. Crosier said the SEC has looked into Puplava, but that was more than a year ago and nothing has happened.
The San Diego County District Attorney's Office requested copies of related civil case files but closed its investigation in July after finding no evidence of criminal conduct.
The SEC and the District Attorney’s Office declined to discuss the situation, as did Ward.
In August, the consortium terminated the contracts of six brokers who had been enrolling and serving clients for years. Three weeks later, the schools office sued those brokers, claiming they had stolen clients and business from the consortium.
The brokers fought back, filing a 26-page cross-complaint last month that lodged numerous allegations against Puplava, Crosier and county schools office officials.
Among other things, the cross-complaint says Puplava opened a partnership with three of the fired advisers – Barry Allred, Christopher Dougherty and Michael Zeiger – that operated as FBC Insurance Services.
The partners shared tens of thousands of dollars in fees and commissions paid by FBC clients, the cross-complaint alleges.
Court papers also say Puplava negotiated a deal with Aviva Life and Annuity Co. that paid him 30 percent of all commissions the partnership received from Aviva. In 2006, Puplava personally collected more than $26,000 in Aviva commissions from February to October, the cross-suit says.
Citing the ongoing litigation, Crosier declined to address specific allegations, including why Puplava was permitted to sell his clients financial products not available under the consortium when the fired brokers were sued for the same activity.
“There are huge inaccuracies in that lawsuit,” Crosier said. Kris Kertzman, who worked as a consortium broker from 2002 to 2007 but is not part of the pending litigation, said Puplava's clients think he “has their best interests in mind because he works for the county.”
“He's getting paid a salary by the taxpayers to manage the registered representatives, not to be a registered representative,” Kertzman said.