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05.12.17

Press Release: Jim Johnson Demands Phil Murphy Apologizes For Repeated Lies About His Retirement from Goldman Sachs

Jim Johnson Demands Phil Murphy Apologizes For Repeated Lies About His Retirement from Goldman Sachs

Says Murphy Continues to Lie About His Departure From Goldman Sachs To Cover Up His Role In The Lead Up To The Global Financial Meltdown And A Conflict Of Interest With New Jersey State Government

NEWARK, NJ —  Today, Democratic gubernatorial candidate Jim Johnson demanded former Goldman Sachs executive Phil Murphy apologize for his repeated lies to voters about his career at Goldman Sachs. At last night’s debate, Phil Murphy claimed he retired from in 2003, but multiple documents have shown that Murphy lied about the year he departed from Goldman Sachs to cover up his role in the lead up to the global financial meltdown and a conflict of interest with New Jersey state government.

Murphy publicly announced he retired from Goldman Sachs in 2003, but he maintained a hidden position with Goldman Sachs as Senior Director until 2006. Murphy’s role as Senior Director was only revealed in 2009, when he was required to submit a federal ethics disclosure to the State Department upon his nomination to Ambassadorship. According to the Department of State’s brief to the U.S. Senate on Murphy’s nomination as Ambassador to Germany, Murphy “became a Senior Director of the firm in 2003, a position he held until his retirement in 2006.”

“From using dark-money organizations to kickstart his campaign to flat out lying to voters about his retirement from Goldman Sachs at last night’s debate, Phil Murphy has shown, time and again, that he does not believe the rules apply to him. Murphy has made ‘no apology’ for his career at Goldman Sachs, yet he runs away from his time there at every chance he gets. He claims he left before the financial crisis and cannot be held accountable for Goldman Sachs’ egregious behavior — but he was a Senior Director through 2006, years after the firm had begun selling faulty mortgages to hardworking Americans,” said Johnson. “Throughout his campaign, Murphy has been deceiving voters about who he is and what he stands for. I’m calling on him today to come clean about his retirement from Goldman Sachs, and own up to the role he played in creating the financial crisis.”

Murphy lied about his departure from Goldman Sachs to facilitate his appointments to New Jersey government, specifically Governor Codey’s Budget Advisory Team and Benefits Review Task Force. For decades, Goldman Sachs has had ample business with the New Jersey, both as a lender and investment vehicle/manager for pension funds. Murphy’s “retirement” in 2003 was used as a reason why Murphy presented no conflict of interest related to the state’s business with Goldman Sachs. However, according to multiple documents detailed below, Murphy was still employed by Goldman Sachs while serving on these committees — a clear conflict of interest and explicit lie.

Additionally, Murphy’s role as Senior Director of Goldman Sachs influenced his work as the Chair of the Benefits Review Task Force and his recommendations for New Jersey’s worst-in-the-nation pension crisis. In 2006, Murphy testified in front of a joint legislative session that the lack of “alternative investments” was part of the reason for the pensions’ poor performance. Following Murphy’s Benefits Review Task Force report, New Jersey began hiring “alternative-investment” managers for the pension, as well as invested New Jersey pensions in Goldman Sachs fund-of-funds. Murphy’s testimony benefited Goldman Sachs and himself since he has significant investments in the firm’s success.

Now that Murphy is running for Governor, he has suspiciously reversed his position on “alternative investments” and, last night, pledged to end them.

“Murphy’s flip-flop on using ‘alternative investments’ for New Jersey’s pension fund is a clear example of how Goldman Sachs and its executives operate — all for profit, at the expense of hardworking Americans.

“Last night, Phil Murphy accused his opponents of using ‘alt-facts,’ but the fact is, he’s the one who needs to start telling the truth. Even after spending $18 million dollars so far on this race– New Jerseyans aren’t buying it. It’s time we stand up to the insiders and say once and for all: New Jersey is not for sale.”

FACTS:

Murphy Lied About When He Departed Goldman Sachs To Facilitate Appointments In New Jersey Government

When Murphy was appointed to Governor Codey’s budget advisory team, and later appointed chair of the Benefits Task Force, he and official press releases claimed Murphy retired from Goldman Sachs in 2003. In fact, Governor Codey specifically cited Murphy’s retirement as a reason why Murphy presented no conflict of interest related to the state’s business with Goldman Sachs. In 2013, Murphy told Politic, the Yale student publication, that he left banking in 2003, and as recently as 2016, Murphy claimed he had not worked on Wall Street in twelve years, putting his alleged retirement at 2002.

In reality, Murphy was still a Senior Director at the firm until 2006, he merely “retired” from running Goldman’s wealth management division. In 2009, when Murphy was nominated as ambassador his plan for divesting his assets Murphy wrote that her actually “resigned” from Goldman Sachs in 2006. Politico reported that when Murphy became DNC finance chair in 2006, he resigned Goldman on a Friday and began work at the DNC the followingMonday.

Since 2008, some New Jersey media outlets (Star Ledger) have begun describing Murphy’s retirement accurately, as occurring in 2006.

Governor Codey’s defense of Murphy explains the motivation for the deception – Goldman Sachs has ample business with the state, both as a lender and investment vehicle/manager for pension funds. Murphy’s work would have presented a clear conflict of interest and political challenge to his appointment.

Murphy And Codey Administration Misrepresented When Murphy Left Goldman, Said 2003 But In Reality Was 2006

2003: Murphy Announced Departure From Goldman. On an investor conference call transcribed by Fair Disclosure, Goldman-Sachs investor relations had the following exchange “Q26. With regard to Eric Mindich and Phil Murphy leaving, I realize it is this time of year where a lot of partners make decisions to leave, but could you give us some color in terms of how does this year’s departures stack up with previous year’s? (Richard K. Strauss – Deutsche Bank) A. (David Viniar) I don’t think you’re going to see anything unusual. You know that the partners at GS leave. If you go back over our history, you will see a relatively consistent percentage that leave over every two-year cycle – some in the interim year and some at the end of two years – and it’s not a bad thing for GS when partners leave. Our partners are working very hard, hey only work a certain amount of time and we have a very good group of people always waiting to come up and take their spot. Before we went public, the problem was when partners left capital left with them. That doesn’t happen now. So, this is just part of the normal turnover that we have in the partnership of GS. So, I don’t expect anything unusual. We’re always sad in a way when senior people like Phil and Eric leave, but we know they’re not going to work forever.” [Fair Disclosure, 9/23/03]

When Murphy Joined Codey’s Budget Advisory Team, Governor Codey Explicitly Cited Murphy’s Retirement To Argue There Was No Conflict Of Interest Given State Business With Goldman Sachs

New York Times: Murphy A “Retired Partner” At Goldman Sachs, Part Of Codey’s Budget Team. According to the New York Times, “With only about 10 weeks to put a copy of his budget on the desk of every legislator, the announcement last Tuesday that he had formed a team of advisers was one of the early moves that Mr. Codey has made to show that he is addressing the knotty problem. The advisers are Philip D. Murphy, a retired partner of Goldman Sachs; Barbara M. Washington, a vice president of the Merrill Lynch Center for Philanthropy and Nonprofit Management; and Thomas M. Jackson, an executive vice president of the GAB Robins Group.” [NYT, 12/19/04]

Philadelphia Inquirer: Murphy Is A “Retired Partner.” According to the Philadelphia Inquirer, “The members of the budget advisory team are Philip D. Murphy, a retired partner of Goldman Sachs Group Inc.; Barbara M. Washington of the Merrill Lynch Center for Philanthropy and Nonprofit Management; and Thomas M. Jackson, executive vice president of the GAB Robins Group of Companies. “ [Inquirer, 12/15/04]

Star Ledger: Murphy Put On Codey’s Budget Review Team, Described Murphy As A “Retired Partner.” According to the Star Ledger, “Acting Gov. Richard Codey yesterday enlisted three experts in corporate finance to help him devise ways to boost revenues to support the upcoming state budget. “We’re going to bring a business perspective to state government,” Codey said during a Statehouse news conference at which he announced his volunteer budget team. The trio includes executives from two Wall Street banking houses, Goldman Sachs and Merrill Lynch, and a third executive from the global insurance conglomerate GAB Robins Group. […] Joining Washington on the volunteer panel are Philip D. Murphy, a retired partner of Goldman Sachs, and Thomas M. Jackson, executive vice president of GAB Robins Group.” [Star Ledger, 12/15/04]

December 2014: Governor Codey Named Murphy As A Budget Advisor To Help Combat Deficit – Described Murphy As A “Retired” Goldman Sachs Partner. According to the Associated Press, “With a multibillion-dollar deficit looming in the next state budget, acting Gov. Richard J. Codey on Tuesdayenlisted a team of business bigwigs to help bring New Jersey back into the black. […] Codey’s corporate advisers include a retired Goldman Sachs partner [Murphy] and a Merrill Lynch executive.” [AP, 12/14/04]

Codey Denied Goldman Of Conflict Of Interest For Murphy Because He Was “Retired”

Associated Press: Codey Said That Although Goldman Has Public Financing Arms That Deal With State Business, There Was No Conflict Because Murphy Was Retired. According to the Associated Press, “Although both companies have public financing arms that deal with state budgets, Codey said there is no conflict because Philip D. Murphy is retired from Goldman and Barbara M. Washington works in nonprofit management at Merrill.” [AP, 12/14/04]

Bergen Record: Although Goldman Profited From State Bonds, Codey Said There Was No Murphy Conflict Because Murphy Was “Retired.” According to The Record, “Acting Governor Codey saidTuesday that three business executives will advise the administration on closing a state budget deficit estimated at $4 billion to $5 billion. […] “There’s no monopoly on good ideas,” Codey said while introducing the advisory team at his Trenton office. The advisers are Philip D. Murphy of Monmouth County, a retired partner in the investment bank Goldman Sachs; Thomas M. Jackson of Morristown, executive vice president of the insurance group GAB Robins; and Barbara M. Washington of Cape May County, vice president of Merrill Lynch’s Center for Philanthropy and Nonprofit Management. […] Murphy’s former firm, Goldman Sachs, has also profited from state bonds, but Codey noted Tuesday that Murphy is retired. Goldman Sachs earned $2.3 million for handling bonds backed by future proceeds of motor-vehicle surcharges and used to balance this year’s budget.” [The Record, 12/15/04]

When Murphy Led Codey’s Benefits Task Force He Said He Retired In 2003

2005: Codey Press Release Listed Murphy As A “Retired Partner” From Goldman-Sachs. According to a Gov. Codey press release obtained via US Fed News, “Acting Gov. Richard J. Codey, D-N.J., issued the following press release: […] Codey named four business leaders and two professors, all with distinguished careers and experience in the areas of employee benefits, pensions, management, finance and economics, to help identify potential solutions. The members of the task force are: Phillip Murphy, Chairman: retired partner of The Goldman Sachs Group, Inc. Murphy has been an international business leader for 20 years. He has worked in Frankfurt, Hong Kong and New York, and led a number of major company initiatives. He oversaw his firm’s global private wealth management business and helped form the unit responsible for firm-wide business in the emerging markets of Europe, the Middle East and Africa.” [US Fed News, 5/25/05]

State Department Documents: In Reality, Murphy Retired From Goldman In 2006

Murphy To State Department Ethics Official: “I Resigned From… Goldman Sachs In May 2006.” In a letter to State Department ethics officials, Murphy wrote, “I resigned from my position as a Senior Director at Goldman Sachs & Co., a subsidiary of The Goldman Sachs Group, Inc. (together, “Goldman Sachs”) in May 2006.” [Murphy Letter, 7/9/09]

Department of State: Murphy Retired As A Senior Partner At Goldman In 2006. According to the Department of State’s brief to the U.S. Senate on Murphy’s nomination as Ambassador to Germany, “He became a Senior Director of the firm in 2003, a position he held until his retirement in 2006.” [State Department, 9/11/15]

2006: Murphy Quit Goldman And Began Work At DNC The Next Week

Politico: In 2006 Murphy Resigned From Goldman Sachs On A Friday, And Began DNC Finance Chair Work The Next Monday. According to Politico, “Out of the blue, Murphy received a call from Democratic National Chairman Howard Dean, whom he’d met during the 2003 presidential primary dinners in New York. Dean gave his pitch about rebuilding the party from the ground up, with slow and sustained investments in state party operations. Murphy was intrigued. He’d learned from the 2004 race that the party could not outsource to allies essential jobs such as voter turnout and candidate recruitment. But first, Murphy wanted to scrub the books and the personnel. He spent time on the road with Dean to get a feel for their chemistry and mulled the financial plan. […] He resigned from Goldman Sachs on aFriday in May 2006 and went to work at the DNC the following Monday. He was officially elected to the finance post that summer.” [Politico, 10/21/08]

2006: Murphy Testified On Task Force Results, Said Lack Of “Alternative Investments” Hurt Pensions

In Testimony Before The NJ Legislature, Murphy Was Asked Why NJ Pension Investments Performed Poorly And Were Not Fully Funded, Murphy Said The “Controversial” Lack Of Alternative Investments Was One Of The Causes That “Hurt Us.” In testimony, the following exchange occurred: “ASSEMBLYMAN O’TOOLE: Chair, before I go through the specific questions, I’m trying to understand — because I’m not an actuary. I don’t necessarily have a firm grasp on the tables that you have laid out in your report. Page 10 of the report, Table 1, says pension funded levels. And it cites the GASB — the Government Accounting Standards Board — funded ratios. And the funded ratio in 1995 was 93.6, and it goes throughout the years, topping out at 111 in 2000. It declines to 109 in 2001, and in 2002 and ’03, we start hitting a rapid decline, 101, 93, and 87, in terms of the funded ratio. Explain to me– Is that just a burp in the stock market? Is that a mismanagement? Is that an overloading of folks into the system? What causes that funding ratio to have this precipitous decline? MR. MURPHY: I’m going to give you my answer, but I also want to reference Fred Beaver and his staff here, if they want to augment this. It’s a number of reasons. First of all, it is a stock market decline. Secondly, it is a — the demographics of the workforce. Thirdly, it is a phasing-in. Actuarially, when you get above a certain gain, or below a certain loss, you phase things in over time. And that’s a more complicated and more arcane reason. But that is a very significant reason. So I’d say it’s a combination of a dramatic trading off of the stock market, demographics, and the actuarial phasing-in of a combination of gains and, ultimately, unfortunately, losses. I don’t know that our performance, as an investment matter, was– I know there’s been a lot of press around this. It was okay, it was not — we had no assets in the alternative assets space; and I know that’s been a controversial discussion. And I think, absent that, we did not — is a — my guess would be we did not, on average, earn the return on the assets that we could have. It’s not because people didn’t do a good job. But our asset allocation was skewed almost completely toward liquid security, stocks and bonds. And that also hurt us.”[Murphy Testimony, 10/25/16, Emphasis added.]

2006: NJ Began Using “Alternative-Investment” Managers

2006: NJ Began Using “Alternative-Investment” Managers. According to the Philadelphia Inquirer, “Through public-records requests, The Inquirer found that in 2013 the pension system paid more than $410 million to alternative-investment managers, up from less than $10 million the state spent annually managing pension investments until 2005. The state started hiring private managers in 2006.” [Inquirer,2/24/15]

NJ Invested In Goldman Funds

Institutional Investor: NJ Pensions Invested In Goldman Hedge Funds. According to Institutional Investor, “New Jersey is investing in a mix of single-manager, multistrategy and fund-of-hedge-funds firms. Last summer it allocated $500 million to a trio of funds of funds , Arden Asset Management and Goldman Sachs Asset Management in New York and Washington, D.C.’s Rock Creek Group. New Jersey sees value in funds of funds: They enable it to deploy its capital quickly, as well as potentially benefit from sharing information about managers. But because of the added layer of fees, New Jersey intends to limit its fund-of-funds allocation to $2 billion. The state has tended to invest in low risk, brand-name hedge fund managers , firms like Och-Ziff, which has $21 billion in assets under management and a track record that stretches back more than a decade. Kramer worries that the pension system is being too conservative. “I am personally concerned by the tendency, common at many public funds, including New Jersey, to gravitate toward older, less politically risky names,” he says. But even with safe names, there can be setbacks. Three of New Jersey’s funds of funds , Arden, Goldman Sachs and Rock Creek , had assets invested with Amaranth. New Jersey lost an estimated $16 million when Amaranth collapsed in September 2006 after losing more than $6 billion on a bad bet on natural gas. Although the amount was significant, it was still considerably less than the $61 million the pension plan lost in 2001 when Houston-based energy company Enron Corp. failed.” [ Institutional Investor, July 2007]

Some Unions Objected To Goldman Hedge Funds As Rewarding Friends With High Fees. According to Institutional Investor, “The situation in New Jersey is complicated by the unions, specifically some of the CWA locals, which, despite all the arguments in favor of diversification, still oppose hiring outside managers. They see money going to firms like Goldman Sachs, Corzine’s former employer, and hedge funds run by Goldman alumni like Och-Ziff founder Daniel Och, and worry that Wall Street is rewarding its own. New Jersey will pay an estimated $200 million in fees to outside managers for the fiscal year ended June 2007.” [ Institutional Investor, July 2007]

Now Murphy Promises An End To Alternative Investments

October 2016: Murphy Called For Pension Divestment From Hedge Funds. According to New York Observer, “Following news that New Jersey’s pension system lost more than $6 billion last year due to the poor performance of a hedge fund-heavy portfolio, one of the leading candidates to succeed Governor Chris Christie called for reform Monday. Former U.S. Ambassador to Germany and Goldman Sachs executive Phil Murphy said that he wants to see the state shift away from investments in risky but potentially high-return hedge funds in favor of a public bank. The state’s pension system, which has gone underfunded by as much as $80 billion during Christie’s tenure, closed the 2016 fiscal year at $72.9 billion-down $6.1 billion from the year before. Hedge funds’ 12 percent share of the funds led the pack in losses by hemorrhaging 13 percent of their value.” [New York Observer, 10/3/16]

In Op-Ed Murphy Attacked Wall Street Investment Fees For Pension Funds. In a The Star-Ledger op-ed Phil Murphy wrote, “It is no secret that our pension funds for public sector employees are in crisis. It is less well-known that the funds are paying many hundreds of millions of dollars per year in fees to Wall Street. I believe there is a better way to responsibly earn returns at lower costs.” [Star-Ledger, 5/2/16]

In Op-Ed Murphy Criticized Pension Investment In Alternative Instruments Like Hedge Funds.  In a The Star-Ledger op-ed Phil Murphy wrote, “The holy grail of responsible investing is to earn acceptable returns while taking on tolerable risk and paying the lowest fees possible. Transparency is also highly desirable. Our returns have been acceptable, but the fees we pay to generate those returns have exploded. Why? Over the past decade, our pension funds have increasingly relied on so-called ‘alternative investments,’ specifically in hedge funds and private equity. Once a relatively small portion of the overall portfolio, these costly (and, in many cases, opaque) investment vehicles now get 35 cents of every dollar our pension funds invest. In theory, hedge funds generate higher returns when the market does well and prevent large losses when the market does poorly. In practice, the rapid growth in the use of alternative investments has significantly increased the number of players in the market, resulting in lower returns and diminished market advantages. The state’s own data show that, over the past five years, alternative investments simply have not generated sufficient returns to justify their prohibitive costs.” [Star-Ledger, 5/2/16]

In Op-Ed, Murphy Proposed Transitioning Pension Investment From Alternative Investment Into Index Funds. In a The Star-Ledger op-ed Phil Murphy wrote, “We can do better. Based on back-testing of our pension funds’ portfolios, recent history suggests we could have reduced our allocation of alternative investments by nearly two-thirds without sacrificing performance. Instead, we could have invested in low-cost index funds that generated similar returns at a fraction of the price. The good news is we still can; and in doing so, we can redirect hundreds of millions of dollars away from Wall Street money managers’ pockets and into investments that will generate returns for New Jersey’s public employees. That is not only common sense, it puts the common good first.” [Star-Ledger, 5/2/16]

Christie Pension Reform Official Argued That Murphy’s Claims On Alternative Investment Profitability Were Not Accurate. In a The Star-Ledger op-ed Thomas Byrne wrote, “Murphy says that ‘over the past five years, alternative investments simply have not generated sufficient returns to justify their prohibitive costs.’ Really? It’s no surprise that he cited no numbers. They are readily available on the Division of Investment website for anyone who actually wants facts. Polling data no doubt show that attacking Wall Street fees is good politics. We don’t invest in alternatives because we enjoy criticism; we do so after hours of review internally and with outside experts to optimize expected returns. The labor representatives on the State Investment Council get it; five voted for the asset allocation plan and two abstained. It is widely agreed that the problems in the pension system stem from the state’s failure to contribute, rather than due to investment returns, which even Murphy concedes are ‘acceptable.’ The gubernatorial candidates would do well to say how they would assure proper funding in  an affordable manner rather than join the demagoguery on fees.” [Star-Ledger, 5/4/16]

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