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San Bernardino Fires Pension Fund Manager

Benefits: Retirement board says AIM violated investment guidelines and lost $55 million. The firm denies wrongdoing.


The San Bernardino County Retirement Board said Wednesday that it fired a Pittsburgh-based money manager, alleging that fraud by the manager cost the county's employee pension funds $55 million in the stock market's recent dive.

The board said the loss, which amounted to 1.7% of the $3.2 billion in the funds, doesn't jeopardize the pensions of county workers.

"We caught this problem very early," said Timothy Barrett, executive director and chief investment officer of the funds. "It's a serious matter, but it will not have a long-term effect on the fund."

The board said it terminated the contract of Advanced Investment Management Inc. for allegedly violating county investment guidelines in managing a stock index fund. The board is expected to meet today in executive session to decide whether to file a lawsuit against the firm.

AIM, one of 16 investment firms the county has tapped to manage fund assets, was hired in March to manage a so-called enhanced Standard & Poor's 500 index account, the county said. The term "enhanced" often means the investment is designed to move at a faster rate than the market itself.

On July 8, the county said, it became aware that AIM had used "leverage" in the account, against county investment guidelines.

"We believe that AIM violated the investment guidelines in an attempt to mask losses" as the stock market plunged in June, Barrett said, though he said he could not elaborate on how the guidelines were violated.

AIM Chief Executive J. Thomas Allen said the firm "did not manage the retirement account in a fraudulent manner. During the short time the account was open, the board received regular reports....Nothing was concealed from them. While the investment results of the account were not up to our expectations under extreme market conditions, the results achieved were within our permitted discretion."

Allen declined to provide details of the structure of the index account the firm used.

The county administers the fund for workers such as clerks, janitors, and police and fire employees. It pays benefits to 5,000 retirees.

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