The involvement of Goldman Sachs in the proposed privatization of the Louisiana Office of Group Benefits (OGB) is such that even conspiracy theory skeptics might want to take a second look.
Details that are slowly becoming known only serve to raise more questions than they answer and at the same time, feed the anxieties of those who distrust government at all levels.
Capitol News Service has learned that Goldman Sachs has been active in the planned privatization of OGB for much longer than was first thought—as far back as last October or November.
Reports first surfaced a few weeks ago that the Wall Street banking firm, a major player in international financial circles, helped write the specifications for a request for proposals (RFP) from reputable financial institutions to conduct a financial assessment of OGB and to help find a buyer for the agency that currently carries a surplus of more than $500 million.
When it came time to open the proposals for the project, Goldman Sachs was the only bidder and stood to rake in a $6 million fee for its services, whether it was successful in finding a buyer or not.
Now it has been learned that Deputy Commissioner of Administration Mark Brady floated the idea of selling OGB to OGB CEO Tommy Teague in a meeting between Brady, Teague, and four representatives of Goldman Sachs last fall. Brady was reported to have asked Teague if he was on board with the proposal. If not, he was told, Brady “would find someone” who was. Teague is an unclassified employee appointed by the Commissioner of Administration and Brady is his supervisor.
Neither Teague nor Brady returned telephone calls from CNS. To date, neither man has commented on Goldman Sachs’s involvement.
As a result of that meeting, the fiscal staff at OGB was directed to compile financial data with the main thrust being a breakdown of the financial statements of the agency into separate components from OGB preferred provider organization (PPO), exclusive provider organization ( EPO), and health maintenance organization ( HMO), represented by United Health Care, Vantage Health Plan, and Blue Cross/Blue Shield.
Speculation among key OGB employees is that the data was turned over to Goldman or Chaffe and Associates of New Orleans.
Chaffe was given an under-the-radar $49,999.99 contract to crunch some OGB numbers for Jindal in time for him to include the OGB proposal in his proposed budget for the coming year. The budget proposal was presented on March 11, but no mention was made of OGB, leading to speculation that Chaffe’s draft report did not reflect numbers favorable to implementation of Jindal’s plan to sell OGB. The amount of Chaff’s contract was exactly one cent below the amount that would have required approval of the Office of Contractual Review.
When sent requests for copies of the report under the state’s public records act, Commissioner of Administration Paul Rainwater twice denied that any such report exists. But those knowledgeable about events at OGB said there was a report and that Teague was given express orders not to release it to state auditors who also have requested a copy.
Under terms of Gov. Bobby Jindal’s proposal to sell OGB, the buyer would receive between $300 million and $350 million of OGB’s $500 million surplus with the remainder being used to help plug a gaping $1.6 billion deficit for the upcoming fiscal year.
The main hurdle to the implementation of that plan is a state law, R.S. 42:854.5(A), which says, in part, “Any money received by or under the control of the Office of Group Benefits shall not be used, loaned, or borrowed by the state for cash flow purposes” (emphasis added).
The involvement of Brady in the discussions is particularly interesting. Brady was brought into the Division of Administration (DOA) about two years ago. Prior to moving to Baton Rouge from New Hampshire, Brady served as Executive Director of the Arab Bankers Association of North America (ABANA).
Though no direct link between Brady and Goldman Sachs was immediately evident, representatives of Goldman Sachs were featured speakers at ABANA functions and Goldman Sachs was listed as an “institutional member” in ABANA’S 2005 annual report.
One of the speakers was David M. Leuschen, who was a partner and managing director at Goldman Sachs and who was instrumental in advising Mobil Oil on its $81 billion merger with Exxon before moving on to found the Carlyle Group, an international investment firm, and Riverstone Holdings. Both companies are also listed as institutional members in the ABANA annual report.
It was through Carlyle that Leuschen became actively involved in technology investments in the Middle East.
Carlyle and Riverstone partnered in using political connections to solicit the business of public retirement funds from all over the country. Moreover, Leuschen, who owns Switchback Ranch, a 200,000-acre spread in Montana, serves on the board of the Buffalo Bill Museum in nearby Cody, Wyoming. Other members of the board include former Vice President Dick Cheney, former Montana Sen. Alan Simpson, and Ray Hunt of the Texas Hunt Oil family.
State funds that invested in Carlyle included $40 million from the New Mexico State Investment Council, $100 million from the Connecticut State Pension Fund, and $100 million from the Texas teachers’ pension fund (whose board was appointed by then-Gov. George W. Bush), and hundreds of millions more from the California Public Employees’ Retirement System, the Retirement System of the State of Illinois, the Delaware Public Employees Retirement System, the San Francisco Employees’ Retirement System, and Ohio State University. Carlyle and Riverstone also retained a third firm tied to them and that firm, Searle & Co., received $530 million in investment commitments from the New York State Pension Fund.
The latter transaction resulted in an extensive investigation of both Carlyle and Riverstone by New York Attorney General Andrew Cuomo. His prosecution resulted in Leuschen and his two firms having to repay the New York fund $50 million—$30 million by Riverstone and $20 million by Carlyle.
Additionally, the Nevada Public Employees Retirement system only last month fired Goldman Sachs and Quantitative Management Associates as its portfolio managers.
Goldman Sachs managed $600 million and Quantitative Management handled $500 million of the system’s total holdings of $2.5 billion.
Among those who have worked in the employ of the Carlyle Group are former President George H.W. Bush, former Secretary of State James Baker, former British Prime Minister John Major, a member of the Bid Laden family of Saudi Arabia, former BP chief executive John Browne, and former Louisiana Senator John Breaux, now a Washington, D.C. lobbyist.
Lest OGB employees consider themselves unique, the move to privatize government agencies is by no means limited to Louisiana. Texas billionaire Thomas Hicks, who contributed $25,000 to George W. Bush’s gubernatorial campaign, was appointed to the University of Texas Board of Regents following Bush’s election.
Hicks then pushed for the privatization of the university’s assets and eventually created the University of Texas Investment Management Co., so that its dealings would be concealed from public scrutiny. Only a massive public outcry forced the management company to reopen its holdings.
Typically, a high-ranking government official directs a substantial amount of government business to the Carlyle group with the taxpayer often being the source of the money. Then, upon leaving public service, the high-ranking official joins the Carlyle group and cashes in.
With Goldman Sachs searching for a buyer, the question was whether the buyer might ultimately be Carlyle and would any “high-ranking” Louisiana officials subsequently leave state government to join Carlyle?
There are reports that at least two groups are considering class action lawsuits to halt the proposed sale of OGB.
Reports also surfaced last week that Goldman Sachs was having second thoughts about the $6 million contract to find a buyer. Representatives of the banking firm, in a conference call on April 11, demanded that the state indemnify the firm from any legal liability stemming from lawsuits. When Division of Administration (DOA) officials balked at that demand, the Goldman Sachs representatives said they would have to talk to their legal department and get back with state officials. They had not called back by the end of last week.
Louisiana Voice 
State employees and retirees, notoriously slow to action, seem to be finally waking up to what is going on. The average taxpayer does not understand that the governor’s moves, in his zeal to do away with most public sector positions, will cost that very same taxpayer more in the long run. This goes for the sale of the prisons as well as the proposed dissolution of OGB.
There are certain things that are mandated by the state’s constitution, or are legislatively ordained. These things cost money. A prudent leader would seek the best way to perform the required duties at the least cost. Selling OGB, or outsourcing the PPO, will not give the desired result.
Jindal is very good at raising the ire of the state’s taxpayers by demonizing state employees. However, those same taxpayers are not being told the full story. It’s possible they never will hear it.
Just heard Tommy Teague has been fired and new CEO has already been appointed…what’s up with this?
Not sure. He was not one of my sources for my stories. I never spoke with him. Apparently they wanted someone more compliant who would play ball. It’s a Jindal power move, from all appearances.
It seems that maybe this story is getting a little too close to the truth for the Commissioner and his henchmen. Maybe there is some paranoia going on in the Claiborne building and guess who is conveniently out of town raising money AGAIN!
What, if any, connections does Goldman Sachs or GS Investments have with the current, private administrator of the insurance products for the OGB?
Would like to read of a closer look at those relationships to see if there isn’t any more to the story.
How deep and wide are the personal/professional relationships between individual players, domestic corporations and the State government?
Did the buyer already exist before the supposed financial assessment? Wouldn’t it be something if there’s more underneath this privatization of OGB than just privatization, saving no money but in fact making money for a few well-positioned players?
The love of money is the root of all evil !!!