Douglas Lemon--the Arizona State Retirement System's investment manager and a critic of policies he fears could jeopardize the $13 billion fund--has been placed on administrative leave pending his request for a "normal stress" workplace.
Lemon, former executive director of the State Retirement System, says he is convalescing at home from advanced cardiovascular disease. He recently made a formal request through the Americans With Disabilities Act for "normal working conditions," he says, because his condition prevents him from working in a "high-stress, threatening environment."
He would not comment further or provide details of what caused his job to be "high-stress" and "threatening." As investment manager, he serves as a liaison to several professional investment firms under contract with the system.
Lemon's clashes with political leaders such as Governor J. Fife Symington III and state Treasurer Tony West are a matter of public record.
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However, Lemon also has publicly questioned an investment policy that he believes would make the money vulnerable to unscrupulous brokers looking for hefty commissions, or to politicians seeking to pay back favors.
In February, Lemon submitted a memo to the Legislature that outlined the risks of letting the Retirement System--and not a professional investment house--invest 20percent, about $2.6 billion, of the fund.
Lemon's boss, LeRoy Gilbertson, wants that much of the fund turned over to internal investment staff.
Lemon's memo responded to a bill sponsored by Representative Barry Wong, Republican of Phoenix, that would ban inhouse investing.
In-house investing has been supported by the Arizona State Retirement System Board and the Investment Advisory Council, the bodies that govern the retirement system; most members of those boards were appointed by Symington.
Previous boards chose not to invest money internally, relying on reputable money-management firms.
"We talked about in-house investing many times," says Rollin Pelton, former chair of the Investment Advisory Council. "We worried we'd be pressured by brokers. Our conclusion was always that the danger was too great. You get wined and dined at expensive restaurants and then you get expensive Christmas presents and then suddenly you're obligated. The danger is too great. We always wanted to keep trading at arm's length."
Lemon's memo to the Legislature echoed Pelton's concerns. He wrote that the two governing boards and staff might face "undue political and social pressure to consider suboptimal investment vehicles." And he said state investment personnel "will be forced to work for a fraction of what they could earn at private investment firms, and therefore, the ASRS may become a training center for inexperienced investment employees."
"... The citizens of Orange County had no idea that their tax dollars were at risk because the dollars were being invested by inexperienced personnel," he wrote.
Although Lemon's memo contradicted his supervisor's position, Gilbertson says Lemon's opposition did not create stress in the workplace. In fact, Gilbertson says, the memo was written after Lemon went on leave.
"He has a job to do and he considers that stressful; I guess that's his interpretation," Gilbertson says of Lemon's complaints.
Gilbertson successfully testified against Wong's bill, which died in the House Government Operations Committee.
Wong says he sponsored the bill to ban inhouse investment after talking to retirees and constituents. He said he didn't expect it to pass, but used the bill as a vehicle to alert the legislators to the dangers of inhouse investing.
"The issue I raised is safety," he says. "I wanted to make sure when they bring money in-house they aren't exposing beneficiaries to greater risk.
"Also, when you bring money in-house, you increase the bureaucracy of government. It's not as easy to shrink government as it is to terminate a contract with an investment manager.
"And I was concerned about the return on the investment. Would it be better than with a money manager? I don't think it's wrong to spend money on commission if you get experts in field, because you make more money."
Gilbertson has long argued the money would be safe, invested in funds that copy major New York investment funds. He also says in-house managers would let the system save $1 million for every $1 billion invested.
Gilbertson "made a strong enough argument" to the Government Operations Committee to derail the bill, Wong says.
The move for in-house investing was recommended in a state auditor general's report in 1994. Shortly after the report was released, Gilbertson hired its author, Anthony Gaurino, to be his deputy director.
Gilbertson has not been the only official to clash with Lemon.
In the late 1980s, Lemon rejected a plan to invest retirement money in a real estate project promoted by then-state senator Tony West and West's business associate John Stiteler.
Stiteler was later linked with six real-estate-related bankruptcies, six-figure tax liens and a federal lawsuit alleging he breached fiduciary duty when he served on a bank board.
Lemon also was a vocal opponent of Symington's appointment of Stiteler to the ASRS Investment Advisory Council in 1993. Stiteler resigned from the board after news reports of his financial woes surfaced.
Stiteler's appointment to the retirement board was also promoted by George Leckie, then a Symington aide. Leckie has been indicted by a federal grand jury which accuses him of rigging a $1.5 million contract for Project SLIM, Symington's program to improve efficiency in state government.
This explains why some legislators are concerned that in-house investing of state retirement dollars might make the fund vulnerable to political paybacks to friends of powerful state leaders.
"There are people in powerful positions who want control of this money," says Representative Kathi Foster, who supported Wong's bill. "Retirees in my district are very concerned.
"Anytime you open up a pot of money to the perusal of the Governor's Office or people in that camp, you open up the money for things you don't want.
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