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New Jersey Pensions Czar Funneled Money Into Fund His Firm Invests in Without Disclosure

Chris Christie’s friend and pensions overseer Robert Grady invested New Jersey money into a fund which his own private firm also invested in, according to the International Business Times, raising concerns about a conflict of interest.

In 2010, Chris Christie appointed friend, former executive and GOP power broker Robert Grady to be the head of the State Investment Council, responsible for oversight of the investments made using money from the state pensions fund. In 2011, Grady, in a larger strategy of shifting money into hedge funds and private equity, pushed to invest up to $1.8 billion in the Blackstone Group, and more specifically Blackstone Capital Partners VI.

What Grady did not disclose to New Jersey officials is that another investor in that group, Cheyenne Capital, had one Robert Grady as one of its partners. Cheyenne Capital also lists Grady as a managing director on their website. Grady, from his position of trust and authority over the state’s pensions fund, lobbied the state to entrust pensions money in a group that his firm privately invested in. The transaction itself was legitimate, but there is a conflict of interest there that belies malfeasance.

Secrecy and denials

Normally, such an arrangement would not be undertaken, due to the existence of strict rules barring public officials from getting involved in investments that they have a financial interest in as private citizens- essentially, rules preventing conflicts of interest in state investments.

These rules are meant to prevent the use of public funds to drive private deals between funds and officials. Without such rules, funds could bribe officials with lower rates on their investments in exchange for higher rates on public investments. Such malfeasance with taxpayer money is particularly vulnerable because these private equity arrangements are afforded a privacy not given to more public investments.

The exact contracts between the three parties- the State of New Jersey, Blackstone, and Cheyenne Capital- have been subject to the same secrecy. Grady, in an emailed statement to International Business Times, said that “I have no economic interest in Cheyenne Capital’s investment in Blackstone VI.”

Cheyenne corroborated these claims, saying to IBTimes that “Cheyenne Capital agreed with Bob Grady at the outset that he would have no interest in Cheyenne Capital’s investment in Blackstone VI”, but did not give that publication any documents fully verifying the claims.

Follow the money

The connections between the three parties would have started in December 2011. A New Jersey $50 million investment in Blackstone was proposed as a part of Grady’s larger scheme to invest state money in Blackstone.

In March 2012, state money began to move into the fund, according to New Jersey records. Wyoming records show that Cheyenne Capital moved $2.69 million into Blackstone in 2011.

2014 financial records show Grady as having an ownership stake in Cheyenne Capital. In the section asking officials to list any interests, direct or indirect, in government contracts, Grady did not list the Blackstone investments made by Cheyenne Capital. State Investment Council records show that Grady made the explicit motion to approve the Blackstone deal, and voted to approve it along with most other members of the council.

Council member Jim Marketti told IBTimes that “he had no recollection of Grady disclosing his firm’s investment in Blackstone at the time Grady had the council vote on the Blackstone investments.”

Favors and bailouts

An SEC investigation into Blackstone revealed possible ways in which the fund could favor some investors over other investors. The investigation also showed that investors who become limited partners in Blackstone normally have a minimum investment amount of $20 million.

The Wyoming documents showed that Grady and Cheyenne Capital only invested the $2.69 million- which is listed as the total amount of the investment. This means that Blackstone could have severely reduced its rate on Grady in order to secure New Jersey pensions investments.

Blackstone was also involved in an August 2012 bailout of Knight Capital Group, whose share prices on the NYSE had plummeted due to news about an electronic glitch that struck the group’s electronic trading system. Blackstone money staved off further losses. Furthermore, another company, Stifel Financial, joined the bailout and later acquired part of Knight’s sales and stock trading operations.

Robert Grady is, per the Stifel Financial website, on their Board of Directors. SEC documents show he owns more than 10,000 shares of their stock. The aforementioned 2014 New Jersey state records show that Grady is compensated in his capacity at Stifel.

Blackstone used its money, including New Jersey pensions funds, to bailout and invest in another group alongside a company whose Board of Directors include the overseer of said New Jersey state pensions funds.

This isn’t the only involvement of Stifel Financial with the State of New Jersey. The 2013 state pensions portfolio had 600,000 shares of Stifel in it according to the annual report of the New Jersey Department of Treasury. Stifel executives made $15,000 contributions to the New Jersey Republican Party in 2011.

Robert Grady also serves as the Chairman of the Governor’s Council of Economic Advisors. According to the IBTimes, Governor Christie’s office did not respond to a request for comment.

 Featured image is from Shutterstock

Brad Matthews

Brad Matthews is the Digital Content Coordinator intern for Watchdog Wire. Twitter is @bradmatthewsDC

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Categories: Budget and Finance, Government Transparency, Must Read, Waste, Fraud and Abuse
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