The former Treasurer of Ohio added his voice to critics calling upon the National Association of Attorneys General to explain why it is holding some $280 million its members obtained in settlements with corporate defendants, saying the money is being handled in ways that might violate state laws and regulations.
J. Kenneth Blackwell, a former mayor of Cincinnati who served as Ohio treasurer from 1994 to 1999, said in a letter to Iowa Treasurer Michael Fitzgerald that Iowa’s financial reports “are almost certainly inaccurate because NAAG has been managing, investing, and lending public money with an almost total lack of transparency or accountability.”
“NAAG is holding hundreds of millions in state money off the traditional books,” Blackwell said in the letter, a copy of which was obtained by Legal Newsline. “NAAG is investing this money without proper oversight from appropriate authorities in your state, and it is unclear how NAAG is meeting your state’s public investment standards.”
No one from NAAG was immediately available to comment. The group, which claims all 50 state AGs as members, has said it manages the money on behalf of the states and it belongs “to you, our members.” Since the AGs are state officials who negotiate settlements on behalf of their respective governments, however, critics including 12 current AGs have said the money should be deposited with state treasurers, subject to appropriation by legislators.
In a letter to Iowa AG and NAAG President Tom Miller last week, AGs of Kentucky, Arizona, Florida and nine other states said “we do not understand” how the group’s mission requires it to hold so much money in its own accounts.
NAAG first carved off a piece of settlements negotiated by its members in the late 1980s when it set up a “milk fund” to finance antitrust investigations after settling a case with milk producers in New York. Since then its balance sheet has expanded dramatically, including more than $100 million from the 1998 tobacco settlement, $11 million from the VW “Dieselgate” settlement and $15 million of a $573 million settlement of opioid clams against consulting firm McKinsey & Co. NAAG has made various justifications for the practice, including the need to provide what it calls “grants” to fund state investigations.
Those grants could run afoul of state investment rules, however, Blackwell said in his letter. Iowa, for example, has strict guidelines on how state funds can be invested, mostly restricted to investment-grade bonds. Yet NAAG lends money to states to finance litigation under contracts that require them to pay it back, Blackwell said. “NAAG needs to report how much of your state’s money they have, what debts NAAG says your state owes them, and whether NAAG is complying with the requirements for investing public money in your state.”
NAAG’s internal financial reports show it has lost $10 million so far this year on $260 million in investments in its several funds, including a more than 20% allocation to international equity and 27-36% in U.S. stocks. That could violate investment guidelines in states like Montana, where the state constitution requires all funds to be invested according to a unified plan and prohibits stock investment allocations over 25%.
Blackwell suggested state lawmakers may not even know AGs steered part of the money they negotiated in settlements toward their own professional association.
“Is your legislature aware that these funds exist and are they exercising proper oversight and appropriation authority over the funds?” he wrote. “Are the appropriate legislative committees even aware of what is going on?”
Republican AGs and conservative critics have complained that NAAG uses its independent funding to pursue left-wing causes, including litigation that creates follow-on opportunities for plaintiff lawyers who bring lucrative class actions over the same claims. Private lawyers reaped $175 million in fees from a $10 billion VW settlement over doctored emissions software that largely paralleled lawsuits by state AGs.