Two of Fairfax County’s three employee pension funds were exposed to the bankruptcy of cryptocurrency firm Genesis Global Holdco on Jan. 19.
Genesis Global Holdco LLC, the holding company of troubled cryptocurrency lender Genesis Global Capital, filed for Chapter 11 bankruptcy protection in New York after being exposed to the collapses of crypto investment companies Three Arrows Capital and FTX. Genesis Global Capital also filed for bankruptcy protection.
Genesis Global Holdco owes its top 50 creditors a combined total of more than $3.5 billion, according to a report from Techstory.in. One of these creditors is the New Finance Income Fund from global asset manager VanEck, with a $53 million claim against Genesis.
This fund launched in December 2021 to form short-term lending arrangements with digital-asset entities such as Genesis Global Capital. Last July, VanEck made headlines when Fairfax County’s Employee Retirement Systems (ERS) and Police Officer’s Retirement Systems (PORS) invested a combined $35 million in the VanEck fund as part of a then-new strategy, which also included an investment in Parataxis Capital, a hedge fund with a similar strategy to VanEck’s New Income Finance Fund.
These decisions have received criticism from several other media outlets. One vocal critic has been Edward Siedle, a former SEC attorney who has investigated several public pensions and was a testifying expert in various Bernie Madoff litigations.
“…the County Employees pension [ERS] had over 10% of its assets invested in crypto at its peak and an even greater amount committed, yet-to-be invested. The County Police pension [PORS] had over 13% invested at its peak committed,” said Brian Morales, chief investment officer of the Department of Retirement Systems. Morales was a source quoted by Siedle in his article posted on Forbes.com on Dec. 28. In a statement posted on Jan. 3, Jeff Weiler, executive director of Fairfax County’s Department of Retirement Systems, claimed that ERS had, at its peak, 5.98 percent invested in blockchain technology and FinTech-related venture capital. In the same statement, it was claimed that PORS had 11.13 percent in similar assets at its peak.
Fairfax Department of Retirement Systems has also maintained the position that they cannot publicly disclose information relating to their holdings. Under the Virginia Freedom of Information Act (VFOIA), local pensions are exempt from disclosing investment matters that may have an “adverse impact” on the value of an investment.
“These provisions are enacted to protect the investments of the Retirement Systems, and thus their participants and beneficiaries,” said Weiler in his Jan. 3 statement. “These provisions, however, do not hinder the staff of the Retirement Systems, Boards of Trustees, or county officials from reviewing such materials and holdings. As noted above, the staff conducts a rigorous due diligence process, has independent operational due diligence reviews conducted, and ensures that comprehensive legal reviews are completed before hiring any investment manager. Staff continues due diligence during the time each investment manager is employed; specifically as to their investment philosophy and process, the underlying portfolio’s construction and holdings, and regular reviews.”
“Our nation’s state and local government pensions are supposed to be the most transparent in the world. State FOIA laws were established to ensure public scrutiny of public money,” said Siedle, who sees no reason to take the Department of Retirement Systems at its word.
“Telling the public where some or most of the pension’s assets are invested but keeping secret your riskiest investments – like cryptocurrency – is hardly reassuring for stakeholders, such as taxpayers and pensioners,” said Siedle. In his Dec. 28 Forbes.com article, he noted, “After all, any assets you can’t identify and locate, may not exist.”
According to the U.S. Courts website, cases filed under Chapter 11 of the United States Bankruptcy Code are frequently referred to as “reorganization” bankruptcies. In this case, Genesis is likely to remain in possession of their assets and may continue to operate while undergoing major reorganization to find ways to pay off their creditors – including VanEck and, by extension, ERS and PORS.
Andrew Spellar, chief investment officer of ERS, declined comment. Brian Morales and Katherine Molnar, chief investment officer of PORS, did not respond to questions from the Fairfax County Times.