Sep. 25–Convicted ex-state Treasurer Paul Silvester has testified that the worst deal he made during his corrupt tenure was his investment of millions of state pension dollars in Pioneer VenturesAssociates of Windsor — a partnership whose sales literature Gov. John G. Rowland had personally sent to the treasurer’s office.
And now the transaction is starting to smell even worse: Pioneer has been tied to one of the biggest Wall Street securities scandals in years, and new figures indicate that the state’s original investment of $50 million in Pioneer has lost at least $19 million in value.
This week Silvester’s successor, state Treasurer Denise L. Nappier, told federal authorities she is concerned that Pioneer and its members may be involved in organized crime.
“Can you confirm whether … Pioneer Ventures Corp., or any individual or entity associated with [Pioneer] are targets of any criminal inquiry or investigation of the violation of securities laws?” Nappier wrote Tuesday to U.S. Attorney Kevin J. O’Connor and to Wayne M. Carlin, New York regional director for the U.S. Securities and Exchange Commission.
And if those federal authorities are not investigating, Nappier asked that they start doing so.
O’Connor said his office received Nappier’s letter and that it would give her a prompt response, but he would not say if his office is or will be investigating. The SEC’s Carlin could not be reached.
However, a managing partner of Pioneer said any suggestion that his group was involved in criminal or improper activities is “not true.” The partner, Robert Lerman, said, “I’m very surprised by the letter that was written.”
Concerns about the state’s investment in Pioneer first came to light in 1999, when The Courant reported that Pioneer had put state pension money into small companies whose shares were traded thinly as low-priced “penny stocks.” Their prices per share had plummeted, losing millions of dollars in investment value for state pensioners.
Last month, New York Post columnist Christopher Byron reported that three of the penny stocks Pioneer put state funds into were also owned by Lancer Management Group, a family of investment hedge funds founded by financier Michael Lauer.
Lancer was shut down this year after the SEC found evidence that the funds’ portfolios were essentially worthless; Byron estimated the Connecticut state employee pension fund lost as much as $10 million on the three stocks.
Two of the penny stocks owned both by Pioneer and Lancer were tied to Abraham Salaman, Byron said, a “twice convicted organized crime figure.”
The latest concern for Nappier and her staff appears to be the possibility that members of the Pioneer and Lancer organizations were in communication with one another on investments that, in at least one case, have been alleged by federal regulators to be part of a stock-price manipulation scheme.
In her letter Tuesday to O’Connor and the SEC, Nappier noted that the Post reported a business connection between Salaman and John Ferraro, a top manager at Pioneer. Her own staff’s subsequent investigation found “that Mr. Lauer and Mr. Salaman are known to the principals of [Pioneer], and Mr. Salaman brought at least one investment to [Pioneer],” Nappier wrote.
Lerman, in a phone interview Wednesday, confirmed he had met Lauer a couple of times, which he said was natural because both investment groups had money in the same companies. But Lerman said nothing improper happened, and he never knew of any allegations of manipulations until they emerged in the news in recent months.
Before Lerman could be asked about Salaman, he said he had to get off the phone for another engagement.
The three penny stocks in which both Pioneer and Lancer made significant investments were companies called Fidelity First Financial Corp., Neuro Corp. Ltd., and American Interactive Media Inc. Fidelity First got $13.4 million of the $50 million in state pension funds invested by Pioneer.
INVESCO Private Capital, a consultant hired by Nappier’s office, says the value of that original $13.4 million has fallen by $8.1 million, to $5.3 million. And even that may be an overstatement of its real value.
In a July court filing concerning Lancer, the SEC said Fidelity First Financial got out of the mortgage business in 2000 and “since that time has essentially been a non-operating, shell corporation.” It states Fidelity First’s total assets at $25,101 as of Dec. 31, 2002.
Pioneer’s losses are somewhat offset by a $3.2 million return to the pension fund on one successful investment that Pioneer made, Nappier’s office said.
Nappier’s letter could mean trouble for Pioneer, because a finding of serious wrongdoing by the firm could give Nappier a legal basis to withdraw state pension funds. Otherwise, she complained in the letter, Silvester’s original agreements with Pioneer afford her “only very limited exit strategies.”
This is not first time that Nappier has expressed public concern about the controversial deal that she inherited from Silvester, the now-jailed Republican who pleaded guilty to corruption charges in 1999 and testified earlier this year in a federal court trial about the misdeeds of himself and others.
In January 2000, Nappier asked the SEC to investigate “questionable trading activity” based on a Courant story that said Lerman once took advantage of a brief rise in one of the penny stocks by making an insider trade.
In December 1998, Lerman sold 6,400 of his own shares in one of the “penny stock” firms, Initio, when its price “spiked” following the public announcement of Pioneer’s investment of pension funds in the firm.
Nothing apparently came of Nappier’s 2000 inquiry to the SEC’s Boston regional office — and Lerman said Wednesday he never heard from the SEC about it. So Nappier attached a copy of that inquiry to Tuesday’s new letter, apparently in hopes that the New York SEC office might do more with it.
Although regulators keep an eye on insider trades because of possible stock manipulations, they are allowed by law if reported properly to the SEC — and Lerman did report his. He said it was a one-time stock trade based on a call from his broker and he made “a nominal amount” such as $5,000 or $10,000.
Nappier’s letter also may have political significance, because it calls attention to one of the chapters in the Silvester scandal that puts Rowland in a bad light at a time when federal investigators again are investigating corruption in his administration. Rowland has denied any wrongdoing in the Silvester matter.
One of the partners in Pioneer, James Mengacci, is a family friend of Rowland, and Mengacci’s sister-in-law has long been Rowland’s executive secretary at the state Capitol.
Silvester has told federal investigators that Pioneer’s original investment proposal was forwarded to the treasurer’s office during the tenure of his predecessor, Christopher Burnham, to whom Silvester was a top deputy.
Burnham considered it a bad deal and did not act on it. But after Rowland appointed Silvester to succeed Burnham in 1997, Silvester said he decided to go through with it. Silvester has said individuals purporting to speak for Rowland pressured him to make the Pioneer deal. Rowland has denied exerting any pressure, and has said no individual was authorized to speak for him.
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