County to give $50K severance to investment officer

Zach Fox

Mar. 20, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- The board in charge of the county employees' pension fund narrowly voted to grant its chief investment officer a severance package after hotly debating the issue.

The board voted 5-4 to grant David Deutsch -- who directed investments that lost billions for the pension fund in recent months -- a 90-day severance package that will total more than $50,000, based on his annual salary of $209,000.

Deutsch had requested a 12-month severance.

His lawyer said Deutsch was forced out.

The investment chief resigned two weeks ago in the wake of $2.5 billion in investment losses and revelations that the county had invested $78 million in a hedge fund that was later busted by federal agents for stealing, and not investing, contributions.

The only two members of the board who face a vote from the general public, Supervisor Dianne Jacob and Treasurer Dan McAllister, voted against the motion and argued vociferously against granting Deutsch any severance.

Jacob, McAllister and two other board members failed in a 4-5 vote to deny Deutsch severance payments.

At issue was whether Deutsch had resigned voluntarily, because a county ordinance allows for severance in cases of termination or forced resignation.

Jacob said the county has never granted a severance package for a voluntary resignation.

She said the board would need to disclose what happened in a closed session in order to grant the severance.

"What was the justification?" Jacob said in an interview. "That was never made public, and the public has a right to know when it's the public's money."

Other board members disagreed, saying they were not comfortable discussing the circumstances of Deutsch's resignation, but that the circumstances warranted the severance package.

"For board members to sit here and pretend like what happened in closed session didn't happen is extremely disingenuous," said David Myers, a board member who voted in favor of the severance package.

Deutsch's lawyer, Rory Wicks, addressed the board and essentially confirmed the resignation was forced, saying Deutsch had resigned because he was told the board had "lost confidence" in him.

The pension fund is going through tough times.

Jacob announced last month that the fund had lost $2.5 billion, or about 30 percent of the portfolio, in the previous six months.

A week after that announcement, federal agents said that an investment group called WG Trading was using investors' money for personal items.

The county pension fund had invested $78 million in WG Trading.

How much of that money, if any, will be retrieved remains unknown.

It was the second time in three years that an investment made by the county pension fund had gone sour in a hedge fund, an investment vehicle that requires large contributions and keeps its dealings secret.

A week later, Deutsch announced his resignation.

About three months earlier, the board had given Deutsch a 4 percent raise.

"We are faced with probably several hundred people that we're going to be laying off," Jacob said. "None will receive a severance."

Another board member opposed to the severance package, Doug Rose, said the pension fund's three previous chief investment officers had all resigned voluntarily and not received severance packages.

Rose, Jacob and McAllister were visibly upset by the idea of paying Deutsch any severance.

McAllister especially bristled when Deutsch's lawyer said the former investment officer would agree not to disparage the pension fund if given a severance.

"There is a thinly veiled threat ... that you will disparage and you will speak ill" of the pension fund if not granted a severance, McAllister said, calling it "an affront" to the organization.

"I just find that tasteless. And I'm personally offended by that," McAllister said.

In Deutsch's stead, the board promoted Lisa Needle to acting investment officer while it searches for a replacement.

Needle will receive a 10 percent salary increase until the board finds a replacement.

Deutsch addressed the board, expressing the pleasure he had working in the job.

After the meeting, Deutsch declined to comment further through his attorney.

The severance package was not finalized by the board's vote because it is subject to approval by the county's chief administrative officer, who usually rubber-stamps recommendations from the pension board, said Mike Workman, a county spokesman.

But because there is controversy behind the severance recommendation, the county's chief administrative officer, Walt Ekard, will think about it and has not yet made a decision, Workman said.

After the decision on the severance package, the pension fund also reviewed its hedge fund policy and discussed the possibility of legislation against WG Trading.

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