Former Alaska Revenue Commissioner Adam Crum deviated from state policy and failed to perform the necessary due diligence before committing millions in state savings to a private equity fund, according to an outside review ordered by Gov. Mike Dunleavy after Crum’s decision came to light last summer.
In its report, the D.C.-based law firm WilmerHale said its investigation had raised “significant concerns” about whether Crum met his fiduciary duties under state law. Investigators also found Crum engaged outside lawyers to represent the state in the investment without obtaining the approval of the attorney general “in apparent contravention” of state law, according to the report.
“Mr. Crum’s process for selecting the DigitalBridge fund and the two other private funds in which he intended to invest did not involve rigorous due diligence, and Mr. Crum did not follow Department of Revenue protocols designed to assist him in meeting his fiduciary duties in connection with the investment,” the report states.
The state ultimately invested some $50 million from its primary rainy-day fund, the Constitutional Budget Reserve, with the private equity firm DigitalBridge. The investigation found that Crum intended to invest $75 million with the firm.
The investment came to light shortly after Crum left office to run for governor. The state ultimately sold the investment to an Israeli insurance company and lost roughly $859,000, according to a letter sent to the state House and Senate’s finance committees. A portion of the $50 million sent to DigitalBridge that was not invested yielded $325,000 in interest, offsetting a portion the loss, according to the letter.
“Clearly, this was an unsuitable investment for the (Constitutional Budget Reserve). No question about it,” said Sitka Republican Sen. Bert Stedman. “The ex-commissioner broke his fiduciary duty to execute it.”
Shortly after the legislative session began in Juneau this month, Stedman introduced a bill that would bar the state from doing business with DigitalBridge.
The report, which cost the state an additional $350,000, found no evidence of criminal wrongdoing or self-dealing. And it said Crum had the authority as revenue commissioner to commit money to the private equity fund. But that’s only if he had done the requisite due diligence, and the report says there’s reason to believe he didn’t.
In a phone interview, Crum said he tried his best to keep everything above board. The private equity investment was an effort to simultaneously boost the returns of the savings account and spur investment in Alaska, and he kept in touch with the Department of Law and the governor’s office about the investment, he said.
“I actually had multiple communications with (the Department of) Law, even with Treasury staff, trying to actually figure out what — I would send emails and ask the questions that say, have we met all of the legal duties in order to actually fulfill this?” Crum said.
But according to the investigation, he chose not to inform the governor’s budget office, the legislative auditor, or members of the Legislature as state policy requires. He wrote on a checklist outlining the policy for so-called “non-routine investments” — created after a state investment misadventure in 2015 — that “Treasury must not abdicate its statutory authority.”
Crum also failed to inquire with the Department of Law whether the investment met his fiduciary obligations under state law, according to the investigation.
Crum casts the issues the investigation raises as “procedural.” Details, he said, were not his mandate as revenue commissioner.
“It's not about being technically proficient on all that stuff. It's knowing the overall concepts,” he said. “Making sure that you actually are the expert on the actual delivery of that thing — no, that is not the case. That's why you have staff. Otherwise, why do you have staff?”
The report included four recommendations aimed at avoiding similar issues in the future. As it was released, Gov. Mike Dunleavy issued an administrative order implementing many of the recommendations by placing additional checks on the revenue commissioner’s authority to invest in unconventional assets.
In the order, Dunleavy said the changes were intended to “enhance the transparency of investment decisions.”
