COLUMBIA— The agency that manages South Carolina’s pension portfolio has not engaged in criminal conduct or deceptive practices, but its dysfunctional relationship with the state treasurer must improve, according to an inspector general report obtained by The Associated Press ahead of its Friday release.


Go to to read the report from the state inspector general’s office.

Inspector General Patrick Maley’s report comes three months after Treasurer Curtis Loftis sent him a 37-page complaint alleging multiple “red flags” of potential misconduct over several years at the Retirement System Investment Commission, which the first-term Republican treasurer frequently attacks as secretive and unethical.

While there’s no wrongdoing associated with anything he reviewed, Maley said, Loftis had valid complaints about the agency restricting information from him. Maley also made recommendations for improving processes on two issues.

He found no merit on other allegations, including that investment managers were paying for staff travel and perks.

Chief Operating Officer Darry Oliver said the report exonerates the commission, and he hopes staff can turn their focus to the agency’s mission. Key to improving the relationship is to “let go of the past and move forward,” he said.

“We don’t plan on spending another second of time on any of these old issues now that they’ve been debunked,” he said.

Loftis countered later Friday that the report confirms that he and his staff are entitled to confidential information.

“I make no apologies for asking tough questions and pushing for a transparent pension system that is accountable to its beneficiaries,” he said.

Maley, a retired FBI agent, wrote that he’s never seen such a toxic, distrustful relationship between two organizations, and the escalated tensions are harming the pension fund.

The public spats and name-calling need to stop, Maley said, calling for direct intervention by the Budget and Control Board.

“This dysfunctional relationship has materially impacted RSIC operations in real dollars, primarily in lost and delayed opportunities as described by a RSIC staff member viewing new initiatives as ‘not worth the battle,”’ wrote Maley, also a certified public accountant.

“The RSIC is a cautious, tepid, and defensive work environment where initiative and creativity are dulled and even the smallest issue with the (treasurer) takes an inordinate amount of time to deal with, often never quite resolving. A fog of suspicion, agendas and perceived political calculations have invaded RSIC decision-making, which is unhealthy, particularly in an entity entrusted to manage $25 billion in others’ money.”

As treasurer, Loftis, who is seeking a second term, is a voting member of the commission that approves investment decisions.

At the heart of the feud between him and his fellow commissioners, as well as RSIC staff, is a legitimate debate over investment strategies because the fund has trailed its peers for the past five years. Loftis has complained fees are too high and returns too low, Maley said.

Until a 2007 change in the state constitution, the fund could invest only in stocks and bonds. The commission then diversified quickly, intentionally emphasizing alternative investments that inherently require higher management fee expenses, but with projected benefits of higher returns in the long run and less risk of being hurt by major stock market fluctuations.

Loftis has a right and duty to question the strategy, but instead of open and candid dialogue, there’s fault-finding and contempt, Maley said.

Much of the dysfunction — which the report says may be beyond repair — stems from disputes over access to information. Loftis complains of a “cloak of secrecy,” in part because his staff cannot access confidential information. RSIC staff say no answer satisfies the treasurer. Still, the treasurer should be given nothing short of “full unfettered access in the most efficient and effective manner,” the report says.

“Issues tend to require repeated explanations and are received with a high level of skepticism leading to the next wave of questions, sometimes on the exact same topic previously provided,” the report reads.

For example, one issue seemed to be resolved in March 2012 after 18 days, 13 emails and a conference call. Two months later, it prompted an in-person meeting and 30 emails. Yet Loftis said in his complaint that he still considers it unresolved.

A senior RSIC employee told Maley that administrative staff spends up to 40 percent of their time dealing with Loftis’ information requests. Of all commissioners’ requests between February 2012 and May 2013, 97 percent of them came from the treasurer’s office, according to a tracking system the agency set up.

Maley notes the RSIC had offered staff access to documents, but Loftis deemed the terms unacceptable because limitations continued. Oliver, the COO, said the commission will offer Loftis another agreement next week that incorporates Maley’s suggestions.

“Our intention is to get this issue fully resolved,” Oliver said.

Maley does offer a “silver lining benefit” to the acrimony: It’s encouraged an examination of both infrastructure and alternative investments, and procedures have improved in the past two years. However, benefits are overshadowed by an increasingly toxic workplace atmosphere, he said.

Commission Chairman Reynolds Williams contends Loftis shouldn’t get the credit for a review that began before Loftis took office in 2011.

“It would be much further along without this distraction,” he said Friday.

Maley notes his review did not include Loftis’ conflict-of-interest allegations that Williams benefited from an investment in forestland, since that investigation — requested by Loftis last July — remains with the State Law Enforcement Division. Williams has said he did nothing wrong.